The end of climate stability signals the end of the insurance market as we know it. Will it also signal the beginning of a broader understanding of physical risks by equity and debt holders, regulators, and citizens? The answer to that question will determine whether climate risk changes capital markets forever. Put succinctly: The first time a property floods, it’s an insurance problem, and maybe the second time, but after that, it’s an equity and debt problem.
It's important to understand that insurance isn’t protection against hazards like flooding, wind, fire, or hail. It’s a financial contract to reimburse property owners for the cost of repairing structures only after events that are predictably rare. If hazards stop being rare, stop being predictable, and/or produce damages that aren’t easily reparable (or suggest that a building should not be rebuilt in that location), the existing market structures for both property insurance and property more broadly won’t work.
