Climate change will affect Vermont insurance

With a warmer and wetter climate in Vermont’s future, severe weather events are projected to increase in frequency, and the property and casualty insurance industries may face new challenges as a result, says a report issued Monday by the Vermont Department of Financial Regulation.

Michael Pieciak, the department’s commissioner, said he hopes the report will spur conversations involving the state’s insurance industry, but he also highlighted how findings could affect everyday Vermonters.

Pieciak said severe weather accounts for “the vast majority” of property damage claims in Vermont — and the number and severity of those events are expected to rise, according to research conducted by Northview Weather, a partner on the report.

“The result of that is not just the people who are going to have their properties damaged directly and the emotional toll and the financial toll and the like, but it would result in all Vermonters paying more for insurance,” he said.

It could also mean that insurance will not be as widely available to Vermonters in the future, he added.

The report urges insurers to make adjustments with climate change in mind, including performing stress tests within their organizations, evaluating “implications of climate-related trends” for their investments, and offering incentives for customers to adopt greener practices.

“It is crucial that Vermont insurance companies adequately assess climate-related risk and take the appropriate steps to ensure their continuing ability to cover claims and remain solvent,” the report reads.

The department has been part of conversations about climate change and insurance because Vermont’s a member of the climate working group of the National Association of Insurance Commissioners, Pieciak said.

But interest in the topic is also related to observed weather phenomena.

In his five years as commissioner, Pieciak said he has witnessed a spring hailstorm and a fall windstorm that led to a large number of insurance claims. Looking to the future, the department set out to better understand several things, he said. Are the storms an indication of Vermont’s changing climate? Are they just a fluke, or should Vermonters expect more down the line? And what will this mean for both insurers and the insured?

The department worked with Northview Weather LLC, a Vermont-based firm that makes predictions about adverse weather events, to study the relationship between extreme weather and insurance claims and losses.

Northview examined insurance data from 2010 to 2019 from three insurers, which Pieciak said were selected since they were the three domestic carriers located in Vermont that had the broadest customer base in the state.

The data included more than 15,000 claims and $67 million in losses, representing roughly 12% of statewide personal auto, homeowners and farm owners policyholders, according to the report.

Northview also looked at statewide weather data from 1980 to 2019. Though the firm had insurance data for only a 10-year period, it was able to model claims and losses from 1980 to 2019, producing 20-year trends that showed losses and claims were on the rise for that timeframe.

It also created models based on the weather data. Overall weather peril frequency increased from 1980 to 2019, according to the study. The model projected an increase of 2% to 4% in overall aggregated weather peril risk from 2021 to 2050.

Jason Shafer, president of Northview Weather, said projections were mostly based on recent trends, and the firm did not “get too sophisticated with climate modeling looking ahead.”

“It was more a snapshot of, here’s the current risks, here’s how things are changing and here’s the general direction of where we think they’re going to change based on the current trends,” he said.

Northview looked at a subset of the data — the days with 10 or more claims — when examining the relationship between specific types of weather and insurance claims and losses, according to the report. The analysis found that gradient wind was responsible for the largest number of claims (35.7%), while hail made up the greatest percentage of losses (39.5%).

The report lists a series of actions the Department of Financial Regulation plans to take, which include advocating that the U.S. Securities & Exchange Commission mandate climate risk disclosures for publicly traded companies. The final pages of the report are a letter from Pieciak addressing the commission in an “opportunity to comment,” in which he calls for such disclosures.

Concerns about how climate change may affect insurers — and, therefore, those they insure — is not limited to Vermont. A January Forbes article reported increasing homeowners insurance costs throughout the country and growing concern among U.S. insurers about climate change.

But in Vermont, Pieciak said, many industries are at the mercy of the climate. Take agriculture, for example.

“If you have heavy rains more frequently, it’s going to be harder to grow crops in Vermont,” he said. “If you have warmer winters, but then have severe frost events into the spring, similarly it’s going to be tough for farmers to grow crops in Vermont.”

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