Insurance companies are making record profits off – Latest News
The headlines are relentless, loudly proclaiming that climate-fueled excessive climate has precipitated an insurance coverage disaster, mirrored in dramatic charge will increase for householders and companies. Some warn that complete financial collapse might quickly observe.
But as is usually the case in relation to apocalyptic warnings associated to climate change, real-world information doesn’t help the narrative.
In actuality, the insurance coverage industry, which offers protection associated to hurricanes, fires and different excessive occasions, is having fun with a streak of record profits.
Defenders of high premiums say it’s as a result of it’s a lot more costly to insure properties as a result of of climate change.
But the current spike in insurance coverage costs is far more probably due, in vital half, to political necessities throughout the industry that financial companies contemplate “climate risk,” and the corresponding suite of risk modelers established to fulfill the newly created demand.
Premiums upfront
In 2009, Warren Buffett of Berkshire Hathaway defined how property/casualty insurers made money: “Insurers receive premiums upfront and pay claims later.” The gathered premiums, which Buffett known as “float,” end in a pile of money that companies invest to earn profits.
Buffett defined that as a result of of vigorous competitors amongst insurance coverage companies, most don’t make money from underwriting, they simply search to interrupt even to allow them to then capitalize on the “float.”
That was then.
In 2024 and 2025, insurance coverage companies made vital profits from underwriting alone. According to the National Association of Insurance Commissioners (NAIC) in a report protecting the primary six months of 2025, “Despite heavy catastrophe losses, including the costliest wildfires on record, the US Property & Casualty (P&C) industry recorded its best midyear underwriting gain in nearly 20 years.”
In the second half of 2025, issues obtained even higher, thanks largely to hurricanes lacking the United States for the primary time in a decade.
S&P Market Intelligence introduced of third quarter outcomes, “For US P/C insurers, it just doesn’t get any better than this . . . the US property/casualty insurance industry had its best quarter in at least a quarter of a century—and maybe longer.”
The industry’s bountiful financial outcomes of 2025 observe its most profitable yr in at the least a decade in 2024, in line with the NAIC.
But these larger premiums are crucial as a result of insurance coverage companies are paying out more money, proper?
Estimating risk
Not all the time. While insurers set charges based mostly on what they really have needed to pay out, in addition they depend on forward-looking estimates of risk, usually derived from risk fashions. Since about 1990, these subtle fashions have supported ratemaking, however lately insurers have been tasked with factoring in climate change to estimates of risk. Starting about a decade in the past, the industry’s regulators started raising alarm in regards to the attainable results of adjustments in climate on banking and finance.
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For occasion, in 2015, Mark Carney (then the governor of the Bank of England and as we speak the prime minister of Canada) warned that risk consultants within the insurance coverage industry could be getting the whole lot unsuitable: “Currently modeled losses could be undervalued by as much as 50% if recent weather trends were to prove representative of the new normal.”
Such issues led to new necessities for “climate risk” evaluation and disclosure by insurance coverage companies, banks and others in finance.
These necessities resulted within the creation of a new cottage industry — “climate risk” distributors who promised the power to supply laptop fashions that precisely quantify the results of climate change on excessive climate and dangers of financial loss confronted by particular person properties.
Yet the science behind such daring guarantees has been known as into query. For occasion, one climate scientist warned, “A lot of these bold, hyperlocal claims are greatly outpacing the science.” A model vendor warned equally, “It’s a Wild West right now.”
Such issues have been validated by a new examine of 13 completely different climate risk distributors undertaken by the Global Association of Risk Professionals (GARP) on behalf of the Climate Financial Risk Forum.
Wide vary of outcomes
The examine checked out every of the distributors modeled outcomes for 100 properties around the globe, for a vary of completely different excessive occasions, like floods and windstorms.
The outcomes of the GARP examine ought to ship shock waves by the industry and its regulators.
Not solely do the distributors not agree with each other, however in addition they produce an extraordinarily wide selection of outcomes. For occasion, for a 200-year flood occasion, some distributors conclude that properties will endure complete losses. For the very same occasion and properties, different distributors conclude that there could be no impression in any way.
The variations throughout “climate risk” estimates are enormous.
The implications are enormous as nicely. In the face of completely different risk estimates, educational analysis argues that risk-averse insurance coverage companies will set their costs on the stage of essentially the most excessive estimate, thereby conservatively encompassing all estimates.
If so, that signifies that rising insurance coverage charges could be the outcome of climate change laws, and never precise adjustments in climate.
As far because the precise results of adjustments in climate on anticipated annual losses within the insurance coverage industry, Verisk, a disaster modeling firm long pre-dating the “climate risk” industry, estimates an annual impression of simply 1%.
Insurance companies have spent many many years estimating risk. Perhaps regulators ought to enable them to come back to their own conclusions, moderately than insisting they use dodgy science and charge clients even more.
Roger Pielke Jr. is a senior fellow on the American Enterprise Institute who writes at The Honest Broker on Substack.
