Between a Rock and a ‘Hard’ Insurance Market

Labor markets become “tight.” Stock markets become “frothy.” Insurance markets? They can “soften” — or, more accurately at the moment, “harden.”

Here’s what that means →

Cristina Spanò

The hardening is evident to anyone who has shopped for personal vehicle insurance, which rose 17 percent in the first six months of this year, according to Insurify.com.

Even more problematic is when coverage thins out, as it has in areas hit hard by climate change.

Farmers Insurance stopped renewing almost a third of its policies in hurricane-weary Florida this summer and State Farm and Allstate largely pulled out of wildfire-ravaged California.

Insurance is a cyclical business. After a catastrophe, which may involve billions of dollars in claims, insurers have to increase premiums — a hardening market.

But when their investments do well, as they did through most of the 1990s, insurers have more capital and can compete for more customers by offering lower premiums — a softening market.

Fred Greaves/Reuters

Of course, climate change changes everything.

Years of escalating wildfires, floods, hurricanes and droughts have exhausted insurance reserves.

Over the past year, payouts have been even more costly because of rising prices for building materials and labor.

All that has pushed premiums steadily up, and it’s not clear when they’ll match the new true cost of coverage.

“It depends kind of when we hit the plateau of the impact of climate change,” said David Marlett, a professor at Appalachian State University.

For the near term, he was cautiously optimistic. “If we can get through hurricane season without a bad one, maybe things will be a little stabilized,” Marlett said.

Zack Wittman for The New York Times

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