Insurance industry and catastrophes

The business section of the New York Times has a good article by Roberto Porter on how insurance companies are looking at climate change, " For Insurers, No Doubts on Climate Change."

The usual reaction is are they just going to raise premiums? Porter found that insurance companies did well financially in 2012, so we can assume there were some price rises.

However, raising insurance rates has several kinds of limits.
In the NYT article Porter reports,”Mr. Muir-Wood notes that the insurance industry faces a different sort of risk: political action. “That is the biggest threat,” he said. When insurers canceled policies and raised premiums in Florida in 2006, politicians jumped on them.”

A more prudent defense against an insurance company wipe-out is to merge into a larger customer pool that extends beyond the high-risk locales. This measure helps with cash flow, as well as with rate rise rebellion. In 2011, over twenty percent of insurance in the US was carried by five insurance groups (NAIC report, page 3).
http://www.naic.org/state_report_cards/report_card_wa.pdf

Aggregation is also the basic financial mechanism behind federal flood relief, relying on the pool of taxpayers across the country to pick up the tab for regional events.  We've seen interesting dynamics among 'red' states and 'blue' states in consequence of this politically-shaky assumption of mutual support in time of trouble, even though individuals around the country are typically sympathetic to catastrophe victims.

Accelerated climate change kicks this combine-and-survive strategy to its limits, as regional catastrophic events grow geographically larger and thus more expensive, testing the federal government’s preparedness to pay off, as we saw a few months back with Superstorm Sandy.

Private insurers aren’t ready to throw in the towel, but I expect they are going to lobby for expanded federal instruments for flood insurance and crop insurance and possibly other contingencies to cover catastrophes, even while the private insurers remain largely silent on preventive measures.

h/t Climate Progress pick up on the NYT article.