Risky business
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What challenges are homeowners facing with insurance due to climate change?
Whoa!
Hello, it is Bird. As you might have heard, we are busily working away on a big project over here at Unexplainable. And I'm very jazzed to finally show you all what we have been doing soon. But for now, as we work on that, we are bringing you a few of our favorite episodes. So today's comes from 2024. It is hosted by the amazing Meredith Hodnot. And I wanted to share it now because we are at the start of hurricane and wildfire season. It seems that every year we get these devastating natural disasters that kill dozens of people, cause tens of billions of dollars in damages. And this episode focuses on the ways that we protect ourselves from disasters, which is to say insurance. It asks, when risks become less predictable, what do we do next?
Here's Mara.
Karen Clark says she wasn't that nervous when she walked into the Lloyd's of London offices, one of the oldest and, at the time, most powerful insurance marketplaces in the world. She was there to tell over 100 well-dressed, very polite British men that they were doing their job all wrong.
And I was seven months pregnant. So I waddle into the room and I make this presentation and there was just silence in the room. I think they must've thought, you know, where's the punchline?
Karen was using newfangled 1980s computers to model the worst case scenario. A devastating climate catastrophe. And her model said a disaster like a direct hurricane hit on Miami would cost the insurance industry $60 billion. Nearly 10 times more than these experts thought possible.
They had their tried and true methods of assessing risk. And they had been making a lot of money, so they felt that they had everything all figured out.
Risk is a combination of two things. First, the hazard. So in this case, the hurricanes.
It's not really enough. to know what-if scenarios. So for example, what if a Category 4 hurricane hits New York City? Or what if a Category 5 hits Miami? That's very interesting information, but what is the probability of that?
And the second part of risk is the exposure. In other words, what are the things, buildings, bridges, property that are in the path of the hurricane?
People were moving to coastal areas, and particularly Florida, in droves. So insurance companies were not tracking the values of the homes that they were insuring.
But it didn't take long before Karen's catastrophe models were put to the test.
A hurricane watch is now in effect for South Florida.
So Hurricane Andrew, I remember like it was yesterday, made landfall at 5 a.m. on August 24, 1992.
It is starting to rock and roll out here.
Raging storm surges and treacherous winds battered Florida's southern coast.
We have no Miami radar, so we can forget the Miami radar. It fell off the building.
Karen and her team ran the numbers again and again, trying to get a sense of just how much devastation Andrew would bring.
I never doubted myself until an hour before we were about to release this fax that the losses, industry losses could exceed $13 billion. Honestly, even I was thinking, wow, that's a big loss. What does that look like? Could that be real? Could that be right? Well, I will tell you, Meredith, the phone started ringing off the hook. Nobody believed it. They thought we were crazy. I remember the quotes today. A few mobile homes in an Air Force base. How much can it be?
But as the storm passed, the destructive power of Andrew was clear.
It looks like the aftermath of nuclear war in many places.
At the time, this was 1992, Andrew was one of the strongest and most expensive storms to have hit the country, with insurance claims coming in over $15 billion.
Is there enough insurance money out there to rebuild these communities?
In the aftermath, nearly a dozen insurance companies went bankrupt, the whole industry was in shock, and Andrew had just missed downtown Miami.
How did Hurricane Andrew change the insurance landscape?
Right there, insurers saw that, oh, had Andrew struck 50 miles north, the losses would have been about $60 billion.
All of a sudden, Karen's fringe models seemed prophetic.
The world really changed, I would say, after Andrew.
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Chapters
5 chapters
1
What challenges are homeowners facing with insurance due to climate change?
0:01–5:03
2
How did Hurricane Andrew change the insurance landscape?
5:03–10:20
3
What factors are driving up insurance premiums across the country?
10:20–16:49
4
How do insurers assess risk in the context of climate change?
16:49–22:12
5
What role do catastrophe models play in determining insurance rates?
22:12–27:53