While the insurance industry has, to its great credit, been leaning into initiatives to make people and their property more resilient in the face of climate change, last week's U.S. presidential election means the regulatory environment will be significantly different, come Jan. 20.
Donald Trump has long referred to the "climate hoax" and has called President Biden's big climate-related law the "Green New Scam." Trump will surely withdraw the U.S. from the Paris climate accord, as he did during his first term, and may even do so through an executive order on his first day in office. Backed by considerable oil and gas money, the president-elect has promised to "drill, baby, drill." So any regulatory support for reducing emissions and slowing climate change will be out the window.
But all is not lost for those of us who see climate change as one of the great challenges of our time. Trump won't necessarily block efforts to strengthen buildings and infrastructure in the face of intensifying storms — as long as the justification never mentions the word "climate." States and local governments will soldier on, in any case. Market forces will also keep driving progress, especially for electric vehicles, albeit more slowly, and for property resilience. And institutional inertia and legal challenges likely mean Trump won't be able to accomplish some of the more extreme measures being urged on him by conservative groups, even though Trump 2.0 is heading into office with much more experience and a more detailed plan than Trump 1.0 had eight years ago.
I can't claim a crystal ball, but I'll lay out a few thoughts concerning how the shift in the federal approach to climate will affect the insurance industry and how we can play a key role over the next four years.
Perhaps the biggest shift will affect electric vehicles, whose share of the new car market in the U.S. will now likely be just 28% in 2030, below the previous forecast of 33%, according to automotive forecaster GlobalData.
There is, to be sure, a lot of complexity in that new forecast. Trump has long scoffed at the need to shift away from cars that burn gasoline. He promised to rescind, on the first day of a second term, the substantial incentives that the federal government has provided for purchases of electric vehicles. A Trump 2.0 Environmental Protection Agency has also been expected to withdraw mileage standards that encourage a transition to EVs. But the situation is cloudier now because of Elon Musk, the CEO and biggest shareholder of Tesla, the largest U.S. EV company. Musk publicly endorsed Trump, pumped some $200 million into the Trump campaign, and used his X social media platform (previously known as Twitter) to promote Trump. Musk clearly expects a return on his investment, and I assume he'll get one.
Perhaps Trump's plans for massive tariffs on exports from China, which makes the world's most popular electric vehicles, will protect the U.S. market enough for Musk to be satisfied, but he may also win other concessions that would minimize the slowing of the momentum that EVs have built in recent years.
There are lots of other forces at play, too — Wired does a thorough job of exploring them here — but the trends seem pretty clear. The increase in sales of EVs will slow, at least for a few years, even though the benefits are such that they will continue to gain share in the long term.
Slowing the transition isn't necessarily a bad thing, strictly from the standpoint of insurers. Any major transition causes problems, and EVs have proved tough to underwrite — the battery is such a big part of the value that EVs depreciate differently than do those with internal combustion engines (ICEs); collision damage that could be repaired on an ICE vehicle might total an EV because batteries really can't be repaired; etc. Insurers will need to be agile and continually adjust.
Beyond EVs, Trump's general emphasis on letting businesses do whatever they want will make it hard for groups like the Insurance Institute for Building and Home Safety, which is trying to get regulators, insurers, and builders to adopt standards that will make structures more resilient. Fortunately, not only does insurance regulation happen at the state level, but building codes are adopted at the state or even local levels. A lot of resilience requires community effort — if your home is vulnerable to wildfire, you increase the risk to mine, and vice versa — so plenty of progress can still be made without federal involvement.
A smart friend at a major insurance company told me this week that "we can take some lessons from how mayors are already working together, going back to the local nature of this. Mayors share information and support one another, and that’s on a bipartisan basis."
Market discipline should help with property resilience, too, as with EVs. The Washington Post reported recently:
"In the past decade, hundreds of thousands of people have moved to places threatened by climate change, bidding up real estate from flood-prone coastlines to the fire-scarred Southwest. But [some investors] are pushing in the opposite direction. Their argument: As Americans wake up to the threat of climate change, the value of homes in risky markets will begin to slide. That’s created opportunities to profit by betting against housing markets exposed to weather catastrophes or investing in places that will attract people who want to avoid the worst."
Trump and supporters have floated some ideas for fundamental changes related to climate policy that could make life much more complicated for insurers, but it's not clear yet which of those ideas are serious and which were off-the-cuff remarks by Trump or wishful thinking by supporters. In any case, I'm not sure the ideas are high enough on his list of priorities that he'll even make a serious attempt in time.
I say "in time" because, even if Republicans win control of the House — which seems highly likely as of this writing but isn't guaranteed — his margin will be so narrow that Democrats will be favored at this point to retake control in the 2026 elections, given how rough mid-term elections tend to be for the party of the sitting president. There's even a possibility that Republicans might lose control before the mid-terms, given that at least two members of the House seem to have already been tapped for positions in the administration. Their seats will remain vacant until special elections are held, and Democrats have done well in special elections in recent years.
In terms of radical ideas, I'm thinking, in particular, of the proposal to abolish the National Oceanic and Atmospheric Administration, which would cause chaos for weather forecasting that insurers rely on. The proposal is part of Project 2025, a document from the Heritage Foundation that may or may not be a major planning document for the new Trump administration, depending on who was speaking and when they were talking. While Trump supporters may well be serious about slashing government agencies and departments, I suspect the real animus toward NOAA is about federal work on climate science. If the new administration can get the word "climate" out of every federal document and can slash or eliminate work on climate science, I imagine that will be enough, and I don't think privatizing weather forecasting is plausible within two years, especially with so many other big goals out there.
Along those lines, I'm also skeptical about the talk of killing all the environmental projects in the Biden administration's big infrastructure and climate laws. Trump may well be serious, but he'll need congressional approval, and I just don't think he'll have enough of a margin in the House. While House Republicans voted overwhelmingly against both bills, now that real money is being disbursed, many have been issuing press releases claiming credit for the funds being spent in their districts. Bloomberg reports that 80% of the cleantech funds, or more than $160 billion, has been allocated to districts represented by Republicans, and I can't imagine that two or three of them won't balk at having to tell their constituents, "Oops, never mind about all that money and all those jobs."
I feel the same way about the talk of abolishing the Affordable Care Act. Trump has been promising a better plan for nine years now. How much longer am I supposed to believe he has one? Besides, Obamacare has steadily become more popular, and Trump seems to have higher priorities.
Whatever the new administration's exact priorities and policies turn out to be, the insurance industry can play an important role that no other can fill as we try to protect people and property in the face of climate change.
We're the folks with the data about how severe the damages are from natural catastrophes and with the knowledge about how those risks could have been mitigated. We're the ones with the trend lines showing how much the damage is increasing,
Others can argue, if they really want, about why storms are intensifying, why severe convective storms are becoming more common, why droughts and wildfires are becoming so much worse, and so on. But it's hard to dispute the dollars-and-cents arguments insurers can make.
Those arguments should be enough to let us continue a lot of the good work we've been doing to make the world a safer, more resilient place, for the next four years and beyond.
Cheers,
Paul