Issue 96: Insurance
In this week’s issue:
- Modernizing the insurance industry
- Brilliant fall foliage
- Tipping points redux: drought in the Amazon
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Welcome to the second issue of our Future series. Check out the first on cities.
Feature Story: Insurance
If you managed to keep reading after the word “insurance,” then kudos. Bringing up the insurance industry usually dries out a conversation faster than an ill-timed pun. But look beyond the uninspiring terms like “subrogation” and “pro rata cancellation” and what you’ll find is a truly fascinating landscape of probable risk. And while we won’t bog you down in too many details here, the changing shape of insurance tells a condemning yet compelling story worth sharing.
The job of insurers, roughly, is to financially protect individuals and businesses by assessing and managing risk from uncertainty. It’s an industry that offers comfortable salaries and secure jobs, yet its whole business is in the measurement and quantification of chaos. The problem is that insurers are struggling to keep up with the breakneck pace of climate change, extreme weather events, and macroeconomic conditions. But don’t take our word for it, take theirs. The climate wrench thrown in the insurance system is so concerning that the cost of reinsurance, or insurance that insurers purchase for protection — has skyrocketed.
Insurance acts as a signal for risk. The riskier an asset or property, the higher the price. This is a worthwhile tradeoff for many homeowners. An ocean view comes with a probability of ocean risk, which is why homes built in disaster-prone areas like California, Louisiana, and Florida pay for higher coverage. But climate change-related disasters are becoming more severe, frequent, and widespread, which is increasing insurance rates and complicating the market’s pricing mechanisms. That’s bad news for the planet and for our pockets too.
Insurance premiums covering wildfire, wind, and floods for tens of millions of US properties are expected to rise. But it’s one thing to pay a higher insurance price and another to lose it entirely. The climate has become so volatile that the market is declaring some places too risky to insure at all, which puts individuals and businesses in an increasingly vulnerable state. For homeowners trying to make ends meet, this is an existential threat. But it’s just the beginning. Uninsurable areas will only spread as climate change continues to impact larger portions of the world.
Most insurers cut out flooding from their plans a decade ago, and two major companies decided to stop writing new policies for Californian homes this year. Underlying the problem is a deficit of reliable data. One study found that 39 million homes in the continental US are overvalued since climate risk was not adequately accounted for. Accurate, up-to-date data is essential for an industry built on calculating probabilities and measuring risk. It would make sense, then, to gather as much accurate information as possible.
The insurance industry is on the search for new tools to overcome the incredible challenges posed by climate change. One that’s universally regarded as a game changer are models and services powered by satellite data. In fact, in a recent survey Planet conducted of nearly 100 insurance professionals, 97% reported satellite technologies as an important instrument that can be used to manage or mitigate risk. With global datasets that report on everything from Soil Water Content to Land Surface Temperature, satellites are able to tell homeowner insurers which areas are most prone to drought & wildfires and provide agricultural insurers with crop yield risks.
Models are, of course, imperfect. And no amount of datasets can reliably predict every extreme climate event. But in the aftermath of a disaster, damage reports built on high-resolution satellite data can map out the degree of damage dealt. After aiding in timely on-the-ground efforts, these same datasets could later be used to financially assist those affected. For example, insurers could use this image of damaged roofs following a severe hailstorm in southern Germany to assess damage and verify claims.
Calculating the probabilities and cost of the most complex and damaging threat to the planet is no easy feat, and certainly not one achieved by insurance companies alone. But accurate insurance prices give buyers an informed signal of their assets’ liability and more efficiently provides funds once disaster strikes. Insurance won’t slay the climate hydra, but it provides some armor to soften its blows.
Change of the Week: Fall Foliage
It’s that brief time of the year when the air gets crisp and everyone pretends roasted pumpkin seeds taste good (they don’t). But for satellites, the most noticeable Autumn feature is obviously the changing colors of trees. It’s just begun to cascade down the northern hemisphere and we expect some fabulous foliage over the coming weeks, so let us know if there’s any spots you’d particularly like to see and we’ll take a look.
Climate Watch: Amazon Drought
Extreme drought in the Amazon Rainforest has turned the typically inky-black waters of Rio Negro to a parched, muddy brown. It’s a death sentence for an ecosystem defined by moisture. Dozens of river dolphins and thousands of fish have been found dead, and 42 out of 62 municipalities in Brazil’s Amazonas region have declared a state of emergency.
All imagery Ⓒ 2023 Planet Labs PBC
Editor: Ryder Kimball | Images: Ryder Kimball, Max Borrmann, Julian Peschel, and Maarten Lambrechts
