A recent deep dive from the Financial Times explored the myriad ways that a changing climate is driving up costs for Americans, particularly home insurance and maintenance. The major ripple effects have led experts to worry about a possible threat to the entire financial system.
What's causing concern about financial instability?
With the accelerated increase in global temperatures over the last century, one of the most prominent effects is seen in weather patterns. With temperatures and precipitation more severe, erratic, and frequent, communities around the world have suffered from longer and hotter droughts, more intense hurricanes, bigger flash floods, and more.
And when it comes to the homes and property destroyed in these extreme weather events, somebody has to pay. As the Financial Times noted, natural disasters led to $320 billion in losses in 2024, per reinsurer Munich Re, and the insurance industry directly loses over $100 billion annually.
Given these heavy costs, many experts and policymakers are worried that rising global temperatures pose a "systemic threat" to the financial system.
Why is this financial instability particularly harmful to homeowners?
Historically, as the Financial Times explained, the majority of the financial burden of natural disasters has been absorbed by home insurers and major banks. But with more large institutions pulling out of high-risk, disaster-prone markets, the costs are beginning to fall squarely on the shoulders of homeowners. Often, this means skyrocketing insurance prices — or the loss of options altogether.
The publication cited research from economists at NYU Stern, Rice University, and the Federal Reserve Bank of Dallas, who found that increasingly expensive insurance premiums have led to higher rates of mortgage delinquency, leading homeowners to accumulate more credit card debt and causing other "far-reaching ripple effects" financially.
Federal Reserve Chair Jay Powell gave testimony to the Senate Banking Committee earlier this year, painting a grim picture of the future if these patterns continue. "If you fast-forward 10 or 15 years, there are going to be regions of the country where you can't get a mortgage, there won't be ATMs, the banks won't have branches," he said.
He did argue that this would be more damaging to homeowners and consumers, rather than to the entire financial system, although other experts have pushed back on this view.
"Yes, Citi could potentially pull out of a particular state," Graham Steele, a lead Treasury Department official, said. "But we have thousands of community and regional banks that can't just close up shop."
Economic researcher Shan Ge agreed, per the Financial Times. "In classic economic models, more risk-sharing is better for the financial system," she said. "[Eventually], there's going to be a transfer from Main Street pain to Wall Street pain."
TCD Picks » Upway Spotlight
💡Upway makes it easy to find discounts of up to 60% on premium e-bike brands
|
Do you think America is in a housing crisis? Click your choice to see results and speak your mind. |
Definitely 🙁 How experts hope to mitigate financial risk
The Financial Times explained how, in the case of other systemic threats such as terrorism, public-private partnerships have shifted some of the risk burden away from taxpayers and over to private investment funds.
A warming climate is harder to manage in this way, however, since incidents such as extreme weather are increasing so drastically. Moreover, the rapid rate of these changes makes modeling difficult.
Broadly, experts argue, the best way to safeguard against future financial instability is to focus on minimizing the continued increase of global temperatures — that is, to slash heat-trapping emissions as broadly and quickly as possible.
This is the motivation behind numerous net-zero pledges and goals around the world, from multinational treaties like the Paris Agreement to specific brand initiatives. And while some of these solutions may be expensive in the short term, like switching to fully electric shipping fleets or 100% renewable energy, the cost of inaction would be far, far more immense.
Join our free newsletter for good news and useful tips, and don't miss this cool list of easy ways to help yourself while helping the planet.
