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

Produced as part of the The Munich Re programme: evaluating the economics of climate risks and opportunities in the insurance sector CCCEP research programme theme

Working Paper 50


The series of devastating natural disasters around the world during the past few years has raised questions as to the role of the public and private sectors in providing adequate insurance coverage against future catastrophes.

This paper 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:

  • different projections on future hurricanes and the uncertainty surrounding these estimates;
  • market conditions (ie, soft or hard market)
  • availability of reinsurance;
  • and, adoption of adaptation measures (ie, implementation of physical risk reduction measures to reduce wind damage to the structure and buildings).

Six risk scenarios are developed that represent a plausible range of long-range climate projections based on current scientific knowledge.

Four scenarios reflect state-of-the-art simulations from Bender et al (2010), using different global circulation models (GFDL-CM2.1, MRI-CGAM, MPI-ECHAM5 and UKMO) with dynamical downscaling.

The remaining two scenarios apply a statistical downscaling approach to global climate projections from the IPCC model ensemble.

Each risk scenario implies an exceedance probability (EP) curve for wind-related hurricane risk for a portfolio of nearly 5 million residential properties in Florida with a total insured value of $2 trillion USD.

We determine how insurance pricing would be affected by changes in hurricane activity and the extent that homeowners have invested in cost-effective adaptation measures.

We also estimate how much coverage private insurers could provide should they allocate 10 per cent of their policyholders’ surplus (the difference between assets and liabilities) to insure against 100-, 250- and 500-year hurricanes in Florida.

Holding the residential portfolio constant, we compare the base case (1990) with projections from the six risk scenarios for the years 2020 and 2040 under both soft and hard market conditions, with and without reinsurance, and with and without adaptation measures in place.

Howard Kunreuther, Erwann Michel-Kerjan and Nicola Ranger