Insurance

About a year ago, Hurricane Helene made landfall in Florida and went on to ravage communities in Appalachia. In January, LA was ablaze. In July, flash floods overwhelmed the hill country of Texas, killing upward of 130 people. 

The destruction caused by wind, fire, and flooding has grown exponentially since Katrina blasted its way through New Orleans 20 years ago, devastating communities along the Gulf Coast and killing over 1,300 people. 

Katrina cost some $200 billion in damage when adjusted for inflation — $50 billion shy of estimates for this year’s LA firestorms. All told, there have been over 400 weather events each costing at least $1 billion in damages in the US since 1980. This stretch of bad weather has cost more than $2.9 trillion. And that’s just in the US; the entire world is experiencing increasingly violent weather, droughts, and firestorms as temperatures rise faster than ever. 2024 was the hottest year in recorded history by a wide margin. 2025 is running hot, too. 

When we ask what money is for, personal protection, safety, and security are vital motivations for everyone. But the stakes and means vary wildly. 

Risk factors

Insurance companies have responded to bad weather by abandoning the historical data that supported their actuarial calculations, preferring to use current risk-based models to price their policies. At the same time, the US government is reducing funding for agencies that protect us from extreme weather events (e.g., NOAA and FEMA). Equally vexing, amid rising electricity prices, the Administration has cancelled massive wind and solar projects. With electricity getting more expensive, why are we cutting the supply of renewable energy? Why are we increasing our dependence on coal, oil, and gas energy as their carbon emissions warm our planet? 

Reacting to both unpredictable weather and illogical government policies is confounding stuff for an industry meant to mitigate risk. 

Risk, in the insurance context, can be modeled with a simple equation: 

Risk = Hazard (e.g., a fire) x Exposure (e.g., structural damage to a home) x Vulnerability (e.g., ability to secure safe housing). 

The factor that I’m interested in is the vulnerability one. While we can’t control for the occurrence of natural disasters, their severity or frequency, we can control for vulnerability. How vulnerable am I? How vulnerable are my neighbors? My broader community? Do I have the capacity to overcome the impact if — when — I’m hit? Is it possible to increase the resilience of people who face outsized risk? 

Two-thirds of American homes are owner occupied; one third of homes are rented. Older, white folks are the largest demographic of home owners; younger, BIPOC people are the smallest. While the majority of US homes are insured, two-thirds are underinsured. 

If we focus on exposure to hazards (e.g., living and working in close proximity to extreme heat, violent weather) and vulnerability (e.g., capacity to cope with the hazards), un- and underinsured people are facing a massive and growing set of risks. 

Collective insurance

Human society has come together to meet a lot of challenges over the last 100,000 years; remember, we had saber tooth tigers lurking around 10,000 years ago. Over these thousands of years, we’ve developed sophisticated responses to natural hazards, pooling resources to withstand bad luck. Mutual aid structures have been shown to help communities rebuild after localized disasters. People have helped each other because they’ve known that, someday, they might need their neighbors’ help in return. 

I wonder if we still hold that view. 

Are you feeling more secure in your neighbors’ — or our government’s — capacity to help? I have nice neighbors, and I live in a town with an emergency response plan. Yet I spend a lot of money each year to purchase homeowner’s insurance. Why? Because I don’t have confidence that other people will come to my aid. 

But that doesn’t mean there aren’t examples out there.

As the scope of western Texas flooding emerged this summer, Mexican volunteer groups mobilized to help. In other words, as FEMA was enfeebled by so-called cost savings, mutual aid from south of the border rose to meet neighbors’ needs. The irony. 

Then there’s Mutual Aid NYC, which aims to connect and strengthen local aid groups, and the Nonprofits Insurance Alliance, which provides liability and property insurance to over 27,000 non-profit enterprises. 

Perhaps President Trump’s illogical policies have a silver lining. By destroying the systems and agencies that have historically served us, they’re calling us to strengthen the interdependencies that bind us. If we expand our creative thinking, can we imagine pooling our monies to self-insure our neighborhoods and our communities? 

While we wait for our government and the insurance industry to adjust to the realities of changing climate and increased risk, let’s redouble our efforts to identify the most vulnerable members of our communities, so we can all recover from natural disasters when they strike us. There is joy in embracing our interdependence, in pooling our resources into collective insurance to meet the challenges and risks headed our way.

Please share your thoughts about insurance, your feelings about risk and vulnerability, and the ideas that you are mulling.