Uninsurable: From Straightforward to Up in the Air

Commercial insurance is fundamental to the financial health and stability of modern economies. At its core, a business insurance policy is a method of risk transfer from the commercial policyholder to the insurer. The terms of the risk transfer are contractually defined by the terms, conditions, and limits of the insurance policy. However, not all business risks are insurable. Either by law or by policy exclusion, the following three categories of business risk are uninsurable and must be borne by the business itself:

1. Deliberate, intentional acts that are illegal or violate public policy.
   For example, loss resulting from arson committed by or at the direction of the insured renders the insurance policy null and void.

2. Inherent risks of doing business.
   For example, loss of customers or financial loss to a business due to poor operational or financial management would not be covered by a business insurance policy.

3. Extreme events that cannot be predicted or quantified.
   For example, loss due to war, nuclear explosion, or terrorism are common exclusions in commercial insurance policies.

The above uninsurable risk categories are straightforward. A new category that is so widespread and impactful on its own that it earns a separate label, i.e. climate change, is rapidly joining the divide of what is insurable vs. what is uninsurable. Since the 1980s, insurance companies have employed catastrophic models to estimate the probability of loss due to extreme weather events. In recent years, extreme weather events that are related to climate change have resulted in unsustainable loss payouts by insurance companies. Parts of the world, including the United States, are becoming increasingly uninsurable due to extreme risk of repeating damage related to climate change. Insurance companies are pulling out of some geographic areas completely and modifying coverage in other geographic areas.

Ohio today is not considered a high-risk climate change state, but the overall effect of loss related to climate change impacts all insureds. Ohio businesses are likely to see increased deductibles on their commercial property insurance for specific perils, such as hail and windstorm. Beyond that, there is no disputing that more losses tied to climate change will further restrict coverage availability to all insureds, including those located in Ohio. Those restrictions are to-be-determined, but undoubtedly will take into account  how extreme (both in frequency and severity) climate change-related weather losses are everywhere.

Richey-Barrett Insurance is a Trusted Choice Independent Insurance Agency serving the insurance needs of a variety of Ohio businesses.