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Hurricane Ian’s Devastation Shows the Challenge of Pricing Climate Risk

Hurricane Ian, now downgraded to a tropical storm, is expected to inflict as much as $40 billion in property damage claims and much higher total economic losses, RBC Capital Markets analysts calculated in an early assessment. Even though ferocious storms like Ian seem to make landfall with increasing regularity, insurers and environmentalists say that pricing the risk associated with these events will only get trickier.

Historical actuarial patterns that once helped insurers price premiums are becoming less relevant as severe weather caused by climate change becomes more frequent, said Don Bain, an engineer and senior adviser at the nonprofit group Climate Central. “The ability to price risk depends on modeling, and that modeling is stressed,” he told the DealBook newsletter.

Coastal communities could take a $108 billion hit by 2100, according to an analysis by Climate Central. Researchers predict “significant implications for both property owners and local property tax revenues” as sea levels rise and shift the tide lines that delineate boundaries between public and private property in some states. They estimate that up to 4.4 million acres may be below the relevant tidal boundary levels by 2050, with Florida, Louisiana, North Carolina and Texas most at risk.

“The Florida homeowners’ insurance market is in crisis,” said Kyle Ulrich, the head of the Florida Association of Insurance Agents, a trade group. He said that while climate change may be a factor in mounting premiums, wrinkles in state law that incentivize litigation are putting pressure on insurers’ finances. On Friday, state regulators sought to declare FedNat Insurance insolvent. It was the sixth Florida property insurer to fail this year.

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