Experts warn of 'vicious cycle' in the insurance industry that could have big implications for homeowners: 'Will become increasingly unsustainable'

Insurance markets are trapped in a "vicious cycle" with worrying implications for homeowners and future economic growth, according to The New Statesman. 

What's happening?

The insurance industry depends on historical claims and weather data to price risk, but this has created new challenges and profit losses for insurers amid an uptick in more intense extreme weather, as the British news magazine explained. 

California, which was ravaged by Los Angeles area wildfires that caused approximately $275 billion in damages in January, established a last-resort insurance plan known as FAIR in 1968. 

Between 2020 and 2024, homeowners relying on this plan more than doubled, according to climate journalist Christopher Flavelle, as insurers are issuing nonrenewal notices or pulling out of traditionally high-risk states — though parts of America's heartland have also been impacted.

Despite these challenges, insurers worldwide continue to invest in notoriously polluting dirty energy companies. The burning of gas, oil, and coal accounts for more than 75% of human-caused pollution that is driving global temperatures higher — and supercharging our weather.

Why is this important?

As insurers continue to support an industry that has been aware of and has tried to hide its negative environmental impact, according to internal documents unearthed during an investigation by the ​​House Oversight Committee — and detailed by Heated — they may be sowing seeds of an economic slowdown. 

As The New Statesman pointed out, insurers make "things happen by mitigating risk." If they can't play that role, though, projects might not receive the support they need to launch. 

"Continuing to provide reinsurance for carbon intensive businesses and projects will become increasingly unsustainable," global insurance and reinsurance marketplace Lloyd's of London — the world's largest insurer of dirty fuels — told the magazine.  

However, only 15 of the company's 51 managing agents have agreed to stop underwriting new coal projects, while 46 continue to underwrite new oil and gas fields. 

What can be done about this?

Lloyd's said it would not interfere with its managing agents' underwriting decisions, but The New Statesman pointed out the company had the power to adapt its policies under the Lloyd's Act 1871 and other Parliamentary acts. 

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For the time being, the firm appears to be eyeing how support for the clean energy market will shake out under the leadership of Prime Minister Keir Starmer, who indicated that gas and oil would be part of the energy plan for at least decades to come, per the report. 

If you want to send a message that you value green initiatives, you can get involved by using your purchasing power to support brands and stocks that align with your values.

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