Insuring climate catastrophes in Florida: An analysis of insurance pricing and capacity under various scenarios of climate change and adaptation measures

Howard Kunreuther
Project Complete

This project (continued from earlier efforts) examines the insurance premiums that private insurers are likely to charge, and their ability to cover losses against hurricane risk in Florida as a function of (a) different projections on future hurricane and the uncertainty surrounding these estimates; (b) market conditions (i.e., soft or hard market); (c) availability of reinsurance; and (d) adoption of adaptation measures (i.e., implementation of physical risk reduction measures to reduce wind damage to the structure and buildings).


Major Findings

  • By having all homes in Florida in compliance with the Florida Building Code of 2004 (Full Adaptation Scenario) the uncertainty and magnitude of the premiums that insurers would charge would be significantly reduced from what it would be under the current design of all homes (Current Adaptation Scenario). For example, under the four dynamically-downscaled model scenarios of future climate change, with hard market conditions, full adaptation would narrow the range in 2020 from $10-14 billion to $6-7 billion.
  • Even with a worst case scenario regarding the projection of future storms, private insurers would be able to cover all the losses from a hurricane with 100-year return period in 2020 and 2040 for the Full Adaptation Scenario if private reinsurance were available. Under the Current Adaptation Scenario, private insurers would be able to cover only 70% of the losses in 2020, and 60% in 2040 under the worst case scenario when private reinsurance was available.


CRED2 Award (2010-2015): Funding was provided under the cooperative agreement NSF SES-0951516 awarded to the Center for Research on Environmental Decisions.

For more information, visit The Wharton Risk Management and Decision Processes Center.