Insurance as an adaptation tool

The flood threat in the UK and the recent rises in insurance premiums are focusing attention on the insurance industry. And indeed, insurance is a long-established method for handling risk. But missing from the news coverage is an awareness of some drawbacks to insurance as an adaptation tool.

Insurance is backward-looking. In many places, insurers can only underwrite risk on the basis of past experience. This works well when the risks are comparatively stable, and vary within a defined range that stays put. But that's not the case with climate change. Risks are changing
in large, unstable ways. Underwriting standards and hazard maps keep need large revisions. Policyholders that were once high and dry suddenly find themselves in flood zone one

Insurers often face such situations, and the methods at their disposal are pretty crude. They can raise premiums, or even withdraw coverage from certain areas. Sometimes regulators step in and bar the companies from leaving, forcing them to cover risks and lose money. This is a problem for state insurers, too -- the only difference is that taxpayers are on the hook instead of a capitalist institution. The outcome is pretty similar.