Insurance Industry Predicts More Future Losses — Now Tariffs Add To The Impact Of Climate Claims

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My condo community in Florida has been struggling with our insurance premiums. While our east coast location hasn’t put us in the path of any significant damage nor submitted climate claims since Hurricanes Jeanne and Francis in 2005, we have — like so many places across the US — been the target of insurance industry price gouging.

Wait, you say. Hurricanes Ian and Milton and LA wildfires caused devastating damage and excessive climate claims for the insurance industry. Rebuilding costs have been stratospheric, which has forced the insurance industry to question its future profitability and viability.

Yes, extreme weather has offered the insurance industry to pay out support to people who have suffered catastrophic losses. But it’s more than climate claims that have upended what it means to have insurance. The Trump administration’s insistence on radical tariffs has caused insurers to boost their anticipated costs of climate claims, which is further upsetting the industry, individuals, and condo communities like mine.

Last year, insurers worldwide paid out more than $140 billion in claims relating to natural catastrophes, the fifth consecutive year with losses exceeding $100 billion, as related by Scott St. George in Nature. While calling for scientific methods that protect policyholders from risks being estimated incorrectly, St. George also reveals that insurers use the latest catastrophe modelling and climate science to justify higher prices. That means the cost of being insured is becoming increasingly unaffordable. “Too many people are forced to choose between paying more for the same insurance, accepting lesser coverage to keep premiums manageable or letting their insurance lapse,” St. George states.

The Trouble with Tariffs for Condo Associations

Tariffs, particularly on building materials, can lead to higher condo insurance premiums because they increase the cost of repairs and replacement, impacting both insurers and policyholders. Here’s what that generally entails.

Increased costs for insurers, including higher repair and replacement costs:

• Major construction costs skyrocket: Tariffs raise the prices of essential materials like steel, lumber, and auto parts, which are crucial for construction and repairs.
• Supply chain disruptions: Tariffs can disrupt global supply chains, making it harder and more expensive to obtain materials quickly.
• Rising labor costs: When materials become more expensive, contractors may charge higher fees to cover their increased costs, further impacting repair claims.

The severity of claims, particularly for property damage, can increase due to higher costs for repairs and replacements.

• Impact on condo insurance premiums: As insurers face higher costs to replace or repair damaged property, they adjust their risk models and premium structures, leading to higher premiums for policyholders.
• Need for increased coverage: Homeowners may need to reassess their policy limits to ensure adequate coverage for potential repair or replacement costs, which can also lead to higher premiums.
• Delays in repairs and claims: Supply chain disruptions can cause delays in obtaining materials, potentially leading to longer repair times and higher temporary housing costs, which can also be passed on to consumers in the form of higher premiums.Raw materials, assembled components and even the design for a single product might be sourced from across multiple countries

Raw materials, assembled components, and even the design for a single product might be sourced from across multiple countries that are affected by tariffs.

• Softwood lumber: A significant portion of softwood lumber used in construction is sourced from Canada.
• Gypsum (drywall): A substantial amount of gypsum, used for drywall, is imported from Mexico.
• Steel and aluminum: These materials are also used in construction and other industries, and tariffs can increase their prices.

The effective US tariff rate is now at its highest level since the 1940s after US President Donald Trump signed an executive order to impose 25% tariffs on Canada and Mexico. A new order was also signed for China, increasing tariffs to 20% from 10%.

• Inflation: Tariffs will very likely result in higher prices for US consumers. Tariffs can contribute to overall inflation, affecting industries across the board.
• Economic pressures: The increased costs associated with tariffs can put economic pressure on consumers and businesses.
• Reshoring: Reshoring is very difficult as significant levels of capital investment take years to plan and execute. Many of the imported goods are not easily substituted in the US economy.

Insurers now more than ever have adopted policies to address their customers’ exposure to weather- and climate-related risks and the scale of potential climate claims. Within the limits set by government regulators, insurers decide how much risk they can tolerate across their portfolio, raise premiums for owners of especially exposed homes, and purchase reinsurance to prepare for losses larger than they could normally afford.

How Policyholders Now View Insurance Rates

The Data for Progress and the Insurance Fairness Project surveyed 1,203 likely voters to understand their awareness and views of the national insurance crisis. They were also interested in voter attitudes about how to resolve current challenges in the industry, like home insurance rates rising and providers exiting some state insurance markets. The national poll indicates that 78% of voters are concerned about rising home insurance prices, and these voters place a majority of the blame on insurers themselves. Moreover, the respondents feel that government is doing too little to protect them from rising insurance costs.

The poll examined voter concerns about rising premiums costs; insurers leaving state markets; and, more frequent extreme weather disasters, including hurricanes, storms, wildfires, and floods. The results highlight how much the home insurance crisis impacts individual homeowners personally and the degree that they want lawmakers and regulators to more closely supervise the insurance industry.

Here are some top results from the poll:

• 74% say that a breakdown in the property insurance market would affect them personally.
• 66% are concerned about increasing extreme weather events.
• 74% have either been personally impacted by extreme weather or know someone else who has.
• 85% say insurance executives are at least somewhat responsible for rate hikes.
• 57% of voters disagree that rising insurance costs should be passed to customers.
• A majority of voters think the federal government and state governments are doing too little to protect consumers and hold insurance companies accountable.
• 61% say the federal government is doing too little.
• 52% say their state government is doing little.

Final Thoughts

Climate change has been widely accepted as the major reason for insurance industry premium spikes as a result of decreasing profitability. Additional accepted factors have been more built structures that need insuring, inflation, and increased human populations. Tariffs, however, are expected to have a significant impact on the cost of insurance, which is bracing for more disasters caused by a warming world — hurricanes, tornadoes, earthquakes, wildfires, and flooding.

Climate change provides an unwelcome boost to risk, and, therefore, premiums, and there’s little discussion of mandatory climate insurance in the US. Homeowners across the US are concerned that home insurance companies aren’t doing enough to protect consumers’ interests.

Consumers, though, have the greatest chance of existential loss, and they have a dismal outlook, suspecting that they will be responsible for bearing the costs of climate claims and tariffs. Amid increasing risks of extreme weather, homeowners support the government taking more action to protect their property, in direct contrast to the perceived widespread perspective that populist policies can benefit individual voters.

What would happen if the insurance industry faces a major financial breakdown? Partially, they have only themselves to blame due to ongoing support of the fossil fuel industry.

Featured image: “Damage in Florida following Hurricane Ian” by State Farm is licensed under CC BY 2.0.