Climate change is already happening. If you don't believe it, just ask anyone in the insurance industry, which has been bearing most of the costs. Insurance companies are scrambling to contain their exposure by hiking deductibles, limiting coverage, and often pulling out of risky markets altogether (see my previous post, "Insurance Coverage Crumbles in Coastal States").

This week, ClimateWire reporter John Fialka published a report on how climate change may shrink the insurance industry, and the "seismic economic shock" this would deliver to homeowners and businesses. He says that one solution under discussion is for the federal government to act as a backstop, shielding the private insurance industry from risk.

But that's a bad idea – for two reasons.

1. The cost of underwriting climate change would be astronomical.

     The House has already passed bills that would make the federal
     government the insurer of last resort, and expand the federal flood
     insurance in program ways that would quadruple its risk. But this de facto
     adaptation funding is utterly unsustainable. The federal government can't
     afford to underwrite climate change impacts. The flood insurance program
     is already near bankruptcy due to costs from Katrina and other huge
     storms.

2. Federal funds should be used to reduce risks, not insurance rates.

     Subsidized, federally-backed insurance would keep rates artificially
     low, thus encouraging people to continue building in high-risk coastal
     areas. This is not an effective use of government resources. Government's
     focus shouldn't be on reducing insurance rates, but rather reducing the
     risk to people and their homes from climate change. The way to do
     this is through a mandatory cap on greenhouse gas emissions.

Evan Mills, a scientist and insurance industry expert at the Department of Energy, thinks the insurance industry itself could force meaningful action, just as it "reacted to past calamities by forcing governments to create the first fire departments, the first building codes and the first auto safety testing protocols."

The insurance industry is the largest industry in the world. Imagine if it joined in the call for national climate change legislation. It's certainly in their interest.

Americans have a love affair with coastal living. Waterfront property is highly coveted and highly priced. And now may be nearly impossible to insure due to skyrocketing damage costs from hurricanes.

These are some of the findings in a new report from Environmental Defense titled Blown Away: How Global Warming is Eroding the Availability of Insurance Coverage in America's Coastal States [PDF]. "Across the board, the nation's largest carriers have declared their intentions to reduce exposure in high-risk areas by raising rates, hiking deductibles, limiting coverage and in many cases, pulling out of risky markets altogether."

Here are some more highlights from the report.

Nationwide, insurance premiums have risen an average of 46 percent between 2001 and 2006. Partly this is due to higher real estate values, but increased risk from natural disasters – hurricanes, in particular – plays a significant role.

Of the five states whose insurance rates have increased the most between 2001 and 2006 are, four are on the coast:

• Florida (77 percent increase)
• Maryland (76 percent increase)
• Virginia (67 percent increase)
• Minnesota (66 percent increase)
• Louisiana (65 percent increase)

And these increases are just averages. In many high-risk coastal areas, rates have tripled or quadrupled. In Miami Beach, rates increased 500 percent between 2002 and 2006. In Alabama, the insurance premium for a 35-unit beachfront condominium building went up more than 10 fold, from $35,000 to $424,000.

Premiums are rising because risks are rising. Hurricane Andrew in 1992 caused $26.5 billion in damages and pushed 12 insurance companies into insolvency. There were no major hurricanes for a while so beachfront home building grew. Then in 2004, hurricanes Charley, Frances, Ivan, and Jeanne caused $40 billion in damages with $22.5 billion insured losses. That was bad enough, but 2005 saw hurricanes Katrina, Rita, and Wilma, which caused more than $55 billion in insured losses.

When insurance companies aren't allowed to raise their rates enough to cover their risk, or when they can't buy enough "reinsurance" (insurance for insurance companies) to protect themselves, they simply stop writing policies:

• Allstate no longer offers coverage to 40,000 coastal homeowners in New York. In Florida it shed 320,000 policies and no longer writes new policies statewide. It also stopped writing coverage in coastal areas of Texas, Louisiana, and Mississippi, and stopped covering wind damage in Texas.
• Nationwide Mutual Insurance Company stopped writing new homeowners' policies in Long Island, cancelled 35,000 policies in Florida, and requested a 71 percent increase in Florida homeowner rates. It also cut back on policies along the coast of Maryland and Virginia.
• State Farm Insurance Companies is writing fewer policies all along the coastal U.S., and stopped coverage in five Florida counties.

State-run insurance companies try to fill the void as the insurer of last resort, but some say this is a bad idea because it allows people to build in places they probably shouldn't, and puts the financial burden on taxpayers. A high percentage of state-run insurance companies are insolvent because the claims against them have been so high.

There's no question that global warming plays a key role in the insurance industry crisis. Hurricanes are the main reason that insurance costs have skyrocketed, and global warming increases both the intensity and frequency of hurricanes. The insurance industry itself recognizes the role of climate change. Risk Management Services (RMS), which helps insurance companies set rates, has begun including climate change predictions in their models.

As the Blown Away report concludes, "…insurance companies are walking away from coastal areas in hurricane-prone states, or are dramatically increasing their premiums – a trend that will continue until the federal government faces up to its responsibility to confront the growing problem of global warming."