Month: April 2024

State insurance plans “of last resort” are becoming financial time bombs.

Bloomberg:

The average premium for US homeowners insurance is expected to hit $2,522 this year, up 6% from the end of 2023. Premiums in Florida will approach $12,000.

The average premium for homeowners insurance in the US is expected to hit $2,522 by the end of the year, driven largely by intensifying natural disasters, rising reinsurance costs and higher fees for home repair, according to Insurify, a Massachusetts-based insurance-comparison platform. That figure would represent a 6% increase over the average US premium at the end of 2023, and follows a roughly 20% increase over the past two years.

“Many Americans are motivated to buy a home because they think their housing costs will remain fixed or stable when compared to renting,” says Cassie Sheets at Insurify, who co-authored the analysis. “But this trend of significant insurance rate hikes makes housing costs more unpredictable.”

Home insurance is becoming a flashpoint in the US as damage from thunderstorms picks up and as climate change increases the frequency and severity of natural disasters. In the 1980s, the country experienced about three disasters a year that caused damages of at least $1 billion each. In the 2010s, that climbed to 13 per year, according to the National Oceanic and Atmospheric Administration. Last year, the US endured a record 28 weather and climate disasters that caused at least $1 billion in damages each.

Responding to climate-induced threats, a growing number of insurance companies are pulling out of California and Florida, where those impacts are frequently felt. To fill the gap, state “insurers of last resort” are absorbing trillions of dollars in risk.

“It’s possible that the highest-risk areas will become uninsurable,” says Betsy Stella, vice president of carrier management and operations at Insurify. “However, where there’s demand, typically a supplier will appear. The question will be, at what cost?”

Dear God no.

This is not fine.

Sustainability by Numbers:

Agriculture in West Africa is vulnerable to the El Niño (warm) phase of the ENSO cycle. It often leads to drier and warmer conditions. It has suffered intense heatwaves and drought in recent months. While this is expected during El Niño years, climate change could be making these conditions more intense.

The biggest impact on cocoa hasn’t been the temperature itself but the impacts of rainfall extremes on disease outbreaks. West Africa experienced extreme wet conditions late last year, driving an outbreak of “Black pod disease”. This is a fungal disease which tends to spike just after the wet season. If it’s not treated, it can destroy an entire harvest. There are copper-based fungicides that can control the disease and reduce these losses but farmers don’t always have access to – or can’t afford – these chemical pesticides.

This extreme rain was followed by extremely dry conditions, which has helped the spread of another disease: the “Swollen shoot virus”. This disease only occurs in West Africa and is spread by insects called “mealybugs”. Cacao trees see large yield declines of up to 25% in the first year of infection and 50% in the second.

It’s really hard to tackle. Ghana has spent almost a century trying to eradicate it. There is currently no chemical treatment for the virus (or at least I’m not aware of one). Swollen shoot virus is usually managed by getting rid of the visibly infected trees and their neighbours. This means cutting down a lot of trees and plantations. Even then, it’s hard to eradicate the disease completely.

The International Cocoa Organization and cocoa traders estimate that global production could drop by around half a million tonnes this year. That’s around 10% of the world’s usual harvest. This comes off the back of two previous ‘deficit’ years, meaning there is a large shortfall of supplies.

Continue reading “Are Chocolate Prices a New Hockey Stick?”