The Big Storms that Just Might Crash the Economy

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The Big Storms that Just Might Crash the Economy

PETER ON THE WRITERS’ HANGOUT PODCAST!

"In a world impacted by increasing climate risk, traditional insurance models no longer apply… This state of affairs isn't just dangerous for homeowners and communities—it could create widespread financial instability…. Properties could become uninsurable for the simple reason that there was no way confidently and defensibly to price coverage without knowing the likelihoods of what just happened looking forward into an uncertain world with a changing climate happening again somewhere else—a situation which increases the likelihood of significant financial instability across the country and (if then) the world," 

Gary Yohe, Huffington Foundation Professor of Economics & Environmental Studies at Wesleyan University, Middletown, CT

The United States has done an excellent job of helping Mother Nature play her “I told you so” endgame. Even if Republicans get an extension of their soon-to-expire tax cuts (and no more), they just might want to take a look at the localized-but-spreading devastation from “natural disasters.” And how we have to pay for all that. Democrats have lots to blame along the way, adding expensive reviews plus complex and costly regulations to building or rebuilding plans. But as President A wants forests swept of obvious kindling, President B has effectively eliminated probationary federal workers that would have otherwise engaged more firefighters in this clean-up effort. Both Presidents seem committed to end combatting efforts to contain further increases in global warming (but we seem to have passed the 1.5 degrees Centigrade increase already), effectively underscoring the “climate change as a hoax” theory, but one is smiling at efforts to give his Tesla strategy a free pass. Gratefully, we’ve weaponized owning a Tesla. Don’t buy one!

But today, I’d like to focus on homeownership and how it just might tank the entire US economy. First, as Lance Lambert writing for the February 12th FastCompany.com, tells us: “When economic analysts talk about a cyclical change, they’re talking about short-term fluctuations driven by the business cycle. When those same analysts talk about a secular change, they’re talking about long-term, structural shifts in the economy. Sometimes a trend can be a little of both.

“One example: First-time homebuyers keep getting older. In 1991, the median age of first-time homebuyers in the U.S. was 28 years old. In 2024, it was 38 years old… In other words, the median first-time U.S. homebuyer in 2024 (age 38) has been out of high school for 20 years but is also only 24 years away from the earliest age at which they could receive Social Security benefits (age 62). … Some of that increase is driven by how strained housing affordability has gotten over the past three years… And some of that increase is driven by secular changes, which are happening across the developed world, as younger generations are delaying life events compared to previous generations—attending school longer, marrying later, buying homes later, and having children later.”

So now we have a political split in one of the greatest “stakeholder” metrics – homeownership – just based on age. Younger voters, watching housing costs soar, have less sympathy for landlords in a MAGA economy where money screams. One of the greatest threats to the economic viability of homeownership, simply, is who pays when wildfires, tornadoes, sea rise and intense storms destroy homes and businesses? FEMA? A federal program under DOGE scrutiny? Private insurance? And what happens to mortgage required proper insurance coverage when it just isn’t available or pushes homeownership out of reach of an increasingly large segment of our population?

Where did disaster insurance begin? Schumacher Insurance Agency explains: “Although home insurance had existed before The Great Fire of London in 1666, it took the ultimate destruction of over 13,000 homes for the people to realize there had to be something in place to compensate those lost properties… That’s when home insurance was born, although it wasn’t called home insurance at first. It was also not home insurance as we know it today: it only had one policy – only one thing could go wrong… Since the great fire in the 17th century and the beginnings of the idea for homeowner’s insurance, people became more concerned about their homes. In those days, homes were made of wood and built-in close proximity. Furthermore, they were lighted and heated using open flames.” Today, there are more ways to destroy real estate than fire, although fire is taking an increasing toll. Given how many of these disasters can take out a gaggle of homes and businesses within the same community, insurers have become experts at denying coverage (either in the policy or after the fact in interpreting the relevant policy)... or cancelling policies.

States with increasing cycles of destructive “natural disasters” are attempting to deal with this giant sucking vortex of insurance costs, but the results have been less than stellar. The February 17th edition of Newsweek describes the insurance wall facing the states with the greatest damage, but this reality will spread to other states like… er… wildfire: “Both California and Florida, which have always been disaster-prone states, have seen an increase in the frequency and severity of extreme weather events over the past few years. Faced with growing costs and higher catastrophe exposure, several major insurers in California and Florida cut coverage, stopped issuing new policies or withdrew from the two states, leaving homeowners scrambling to insure their properties. In both states, home insurance has become harder to find, as well as more expensive.

“California regulators are trying to enforce tougher measures to keep insurers from abandoning homeowners, while officials in Florida are trying to attract private companies back with ‘much more of a free market, open economy and let the market dictate kind of thing,’ Chris Schafer, senior editor for home insurance at Insurify, told Newsweek. ‘Neither state has really found a great solution to the problem,’ he added… While these states are struggling to solve their climate-related home insurance crises, the problem risks spilling over to other states soon.” Here’s the bigger picture as reported by Giulia Carbonaro in the January 224th edition of Newsweek:

“The recent fires in Southern California and devastating hurricanes like Helene and Milton in Florida last year have revealed the fragility within the nation's homeowners insurance systems, which are crumbling under the weight of the growing catastrophe exposure and rising costs… In November 2020, the Federal Reserve wrote of the increased risk posed by climate change that ‘acute hazards, such as storms, floods, droughts, or wildfires’ have the potential to quickly change the value of real or financial assets, something which could result ‘in an increased frequency and severity of financial shocks.’…

“A report on climate change the U.S. property insurance sector released in December by the Senate Budget Committee read: ‘Unless the United States and the world rapidly transition to clean energy, climate-related extreme weather events will become both more frequent and more violent, resulting in ever-scarcer insurance and ever-higher premiums… This is predicted to cascade into plunging property values in communities where insurance becomes impossible to find or prohibitively expensive—a collapse in property values with the potential to trigger a full-scale financial crisis similar to what occurred in 2008.’” Nevertheless, today we have active metrics based on a mathematically calculable progression of natural disasters, a year-by-year increase in average global temperature, and we can state with statistical certainty what the financial parameters of the expected costs of such disasters. We cannot plead ignorance anymore. Falling back on clearly false conspiracy theory explanations, in lieu of facts, is no longer viable.

I’m Peter Dekom, but two major issues that the Musk/Trump administration is failing to address, either or both of which is capable of bringing the United States to its knees, are the costs associated with climate change-related disasters and elusive/mega-expensive healthcare; we are totally reactive, ignoring prevention even when that is the vastly less expensive choice.