According to the Insurance Information Institute, the cost of homeowners insurance along the East and Gulf coasts has increased by as much as 100% since 2004.  The Wall Street Journal (WSJ) recently reported that regulators and other critics contend that this increase in premiums is due in part to insurers’ use of a “computerized catastrophe model” that assumes climate change resulting in more frequent and more severe hurricanes.  The “cat model,” which was revised following the harsh 2004 and 2005 hurricane seasons to embrace a more short-term methodology and higher rebuilding costs, indicates that the rising sea temperature caused by global warming is likely to cause more hurricanes to hit the US coastlines. Accordingly, insurers have raised premiums and deductibles for these more vulnerable coastlines, while other insurers have left the market altogether.  Indeed, insurers themselves are burdened with higher reinsurance costs for these areas because many reinsurers, and the rating agencies that assess their financial wellbeing, are likewise using similar cat models.

Although (re)insurance companies contend that the new cat models are more reliable and enable them to avoid a financially catastrophic event of their own, some state insurance regulators and consumer groups are objecting to the increased role the new cat models are playing in determining premiums.  These critics note that, despite the record damages following the 2004-05 hurricane seasons, insurers still managed to realize considerable profits. Essentially, critics contend that, although it is generally accepted that global warming is leading to an increase in sea-surface temperatures that is, in turn, linked to greater hurricane activity, scientists remain divided over how that may affect the number and severity of hurricanes reaching the East and Gulf coasts.  Indeed, a few climate experts believe that global warming will result in fewer hurricanes making landfall in the coastal US.