Years ago, a small farm mutual insurance company wrote in its annual report, there was a rash of barn fires which meant the company had to pay out insurance and lost money for the year. The company was ensuring all its insurance holders with barns have preventable measures to lessen the risk of barn fires. The next year couple of years, there were fewer fires and the company paid a rebate back to policyholders. Insurance companies have a valuable role in the economy, but if they pay out too much, the company does not make money. If the company does not make money, they determine is the cause a one off or on going and what should be the risk assessment.

In a article by Christopher Flavelle, Jill Cowan and Ivan Penn of the New York Times News Service, climate change brings good and bad weather events to the US. However, when the bad weather event happens from an insurance company’s perspective, they will determine if they still want to be a provider in the market. Private companies have the right to choice who their clients are, companies owned by the government have little choice.

In California, the company with the largest market share in homeowner insurance – State Farm, announced it would stop selling coverage to homeowners. State Farm and other companies are trying of losing money to wildfires, floods and the negative effects of climate change.

The negative effects of climate change include storms and fires becoming bigger and lasting longer than in the past. The storms have always happened, but when the 100 storm becomes the normal or every 5 years, insurance companies both run for the exit and raise prices out of reach for the average mythical homeowner.

In most states, there is a desire not for the state government to be in the insurance business, but in Louisiana there are incentives for insurance companies to write policies. In Louisiana, the state’s Citizens Plan increased prices 63% to an average of $4,700 a year.

In coastal states, Congress created the National Flood Insurance Program in 1968, and as floods are more common, less private insurance companies are providing coverage. The intent of the program was to keep prices reasonably low and have averaged $888 a year. Under the new risk-based pricing the average price goes to $1,808. More and more private companies are leaving the business to the National Flood Insurance Program.

According to Jesse Keenan, a professor at Tulane University in New Orleans and an expert in climate adaptation and finance, it the past it has been possible for communities to pass on housing from generation to generation with no mortgages and no banks demanding insurance, which allowed them to go without insurance. However, as storms are more intense and do more damage, there is just not enough wealth to continue to rebuild, storm after storm.

Linking to dividend paying stocks, some of the companies that pay regular dividends are insurance companies. Most of us pay and hope never to collect, just the dividend payments are fine. Private companies have a right to pick their customers and it means not to do business with too much risk. Insurance is a risk business, and if the risks are too high or not enough profit, expect the insurance company to limit its business and focus on prevention.

There are more questions than answers, till the next time – to raising questions.