Numlock Sunday: Polly Mosendz on climate change and insurance
By Walt Hickey
Welcome to the Numlock Sunday edition.
This week, I spoke to Polly Mosendz, who wrote "The 30-Year Mortgage Wasn't Designed for Climate Chaos" for Bloomberg. Here's what I wrote about it:
Damages from weather disasters hit $92.9 billion last year, according to NOAA, and years of increasingly damaging weather events have provoked a reaction in the insurance market, with costs up 13 percent from 2020 to 2023. Those are being driven by premium increases in some of the areas most prone to disasters, and a big driver in turn is the rising cost of reinsurance, which is the insurance bought by insurance companies and has itself increased by 100 percent between 2017 and 2023. It's not like the home insurance companies are having a great time: For the fifth year in a row, insurers paid out more than they brought in with premiums, and in 2023 they paid out $1.11 in claims for every $1 they made.
This was an awesome investigation top to bottom, I really loved it as it touches on some really specific and down-to-earth situations that stem from a rather general and somewhat abstract global climate issue.
We spoke about the government's role in housing, how reinsurance affects homeowners’ policies across the country, and the future of insurance in the age of climate change.
Mosendz can be found at Bloomberg or on BlueSky or X.
This interview has been condensed and edited.
Polly, thank you so much for coming on again.
Thank you for having me. I really appreciate it.
You wrote a really magnificent, very data-driven, cool story with your colleague Eric Roston that came out in December. The title is "The 30-Year Mortgage Wasn't Designed for Climate Chaos" and it is just such a really interesting and really prescient piece about the insurance industry and what it means to evaluate risk in a very dynamic environment. Backing out a bit, what got you interested in this topic?
I'll actually tell you, we have been on and off talking about and working on this story for six or seven years.
Oh my god.
It was a very long time coming. Eric and I had done this story years ago that actually looked at this Army Corps of Engineers project that was happening on Long Island, and specifically was happening in the Hamptons. That Army Corps project had been going on for about 50 years, and the goal of the project was to replenish the beaches in the Hamptons. For those who aren't familiar, the Hamptons are a very well-to-do, very wealthy neighborhood. The waterfront property there has homes that are in the millions of dollars, if not in the tens of millions of dollars. You can imagine that replenishing those particular beaches and that being a federal government project struck some people a little bit the wrong way, while other people were really in favor of it.
When we were working on that story, something that we kept asking ourselves was, isn't it really quite absurd that homes on this beach, which is actively eroding and in some cases eroding out from under the bottom of people's homes, the bottom of these luxury condos — those properties are only insured for a quarter-million dollars. That's a lot of money in a vacuum, but that's certainly not a rebuild value, and definitely not market value in an area like that.
While we were doing that story and reckoning with all this federal money going into that particular erosion project, we also started thinking a lot about what it meant to have that kind of flood insurance limit in that kind of area. We didn't necessarily want to write about that community, in part because plenty of those people don't have mortgages at all, in part because plenty of those people can rebuild no matter what happens, and in part because that beach was largely being fixed, right? You weren't dealing with erosion after the Army Corps project in the same way.
We decided to quietly start expanding and looking more broadly at the United States. Every year, Eric and I would joke, is this the year we do the story? Is this the year we do the story?
On TikTok, I had these searches for erosion, and the TikTok algorithm really does speak to you. Those people have got something figured out over there — rest in peace. I came across this video of Shauna Pelley. Shauna is this delightful woman in Washington state, who's so sweet, so personable. You can really tell that she has all of these interests, and is a really dynamic personality on TikTok. She was posting this video of these CAT machines tearing down her home. The algorithm seemed to have sent me there because I'd been interested in erosion and insurance and property ownership. I'm watching in real time as this woman posts these videos of her home being decimated, because the way a river flowed had changed due to a really extreme climate event.
That's a really long story to tell you that we'd been looking for someone who might be impacted by this, just a normal person in a normal neighborhood, for years, because we'd really been thinking about this disconnect between insurance value and homeownership for the better part of a decade by the time we'd written the story.
It was the better part of a 30-year mortgage that you had to split the data. You talk a lot about these financial instruments and these marketplaces and the fact that most mortgages in the United States are backed by the federal government. Ms. Pelley's, I believe, was backed by the VA.
That's right.
The government has a fairly vested interest in making sure, A, that people get housing, but also, B, that the math adds up in the ledger somewhere. Whether it's the evaluations of these flood zones or just areas that had been neighborhoods for decades and now there are questions about whether they'll last another 30 years, it really sets a bit of a time bomb.
Absolutely. You really nailed it when you said the government has a vested interest in making sure that people have housing. We need to think about that and really, truly do the math on what that sentence means. When you have a vested interest in people having housing, what you're really saying is that the government has a vested interest in people building that work, because in the United States, your primary home is the root of net worth and stability — financial stability, social stability. For the vast majority of people, that is their stability.
When the United States government wants people to be homeowners, that's really what they're trying to build up: stability, and community, and of course fiscal stability as well, but it's more than that. That's why, in some cases, you even have parts of the Affordable Housing Initiative that push for a 40-year mortgage where it might be necessary, because there is such a push for homeownership for all of those socioeconomic reasons.
We have to be very mindful of how much the government wants people to have housing that they own. The reality of that is that it's a really fantastic idea, but where that housing is and how that housing lasts is something that they are increasingly reckoning with, because economists are starting to reckon with it. Then we have to ask ourselves, as we did when we were writing the story, is homeownership at any cost in any location the right way to think about this and the right way to go about it?
It's an interesting tension. Intragovernmental tension is inherently interesting because you basically have folks at Fannie and Freddie, which are ultimately the bag holders for whatever goes down, at least in the United States housing structure; and then you have folks at FEMA and folks who design the flood maps and NOAA basically articulating that there are a lot of issues with their current ledger. The number of houses that are in a flood zone is potentially misleading and might need to go significantly higher.
I think they know these climate events are a risk. The flip side is that because so many mortgages are securitized, the chance that any one tranche, any one bond, is heavily impacted is a lot lower. But every single year, we can all think of a few different storms that were supposed to be a once-in-a-century storm, right? There's supposed to be a once-in-a-century fire, a once-in-a-century hurricane, and those two things happened between, what, 60, 90 days of one another in the last little while?
It's a tension that we need to be increasingly thinking about. It doesn't necessarily mean anything is going to change immediately. I certainly can't imagine the securitization system changing any time recently, but I do think it's something that economists are beginning to think about, because that tension is being increasingly highlighted when every couple months you can turn on the news and see a climate disaster of just jarring, jarring proportions that we might not have been seeing with such regularity even a decade ago.
There's a really interesting element of the story about the financials of this that I want to go into a little bit. Initially, talking about climate change, it's a very big, ongoing thing in the background that you personally experience through articulate, volatile, specific events. The experience of the folks in your story, as well as the experience of a lot of folks who've seen this, is that it also feels like they're dealing with another thing: reinsurance.
It's the climate change of the insurance industry, the thing that's changing a lot of the math. You wrote that the cost of reinsurance increased by 100 percent from 2017 to 2023. Do you want to talk a little about that? I know reinsurance seems like a thing that's boring as hell, but it's actually a key element of this crisis.
You're exactly right. It can be this sort of wonky thing that we think about, but I think David Burt, who we interviewed for our story, said it really well when he said that insurers are risk transfer agents. That really is what reinsurance is about. This is just a matter of transferring the risk, and the reality is that transferring risk is not cheap. It is actually pretty expensive, and it gets more expensive the more risk you're seeking to transfer. That's why you see the cost of reinsurance really going up: Reinsurance shock, which we write about briefly, is basically what happens when the cost of reinsurance has to get transferred to the people who actually live in those homes — and also sometimes to the people who don't live in those homes.
For example, in the state of New York, you can see the cost of insurance going up related to what happened in Florida. It doesn't mean that anyone in New York was hit by a hurricane this year, but it does mean that the industry was hit by hurricanes, and that's going to reverberate as a shock throughout the entire industry. As you see reinsurance go up, it's basically because it's just the cost of risk transfer. It's the reality of risk transfer. There is more risk, and that comes at a cost. It comes at a cost to the system, and that eventually comes at a cost to the person who actually owns that house and lives there and has to put that escrow money into their mortgage.
It was one of those really revealing moments. Even during a banking crisis, there's a moment where people realize, well, the bank doesn't just have your money in a vault somewhere. They spread it around to everyone else. With this, this was somewhat revelatory to me because it's in the sense that when I buy a home insurance policy or a car insurance policy, the money's not just in a bank somewhere. That money itself has been sent into the reinsurance system of the insurance company itself getting insurance on that. It's a little topsy-turvy, but it's a fascinating look behind why, like you mentioned, a storm in Florida can send rates up in New York.
Exactly. It is wonky; it is hard to follow. I don't fault people who are just trying to buy a home and find some stability for their family, as they've been encouraged to by the entire system, not really thinking about that day to day.
The flip side is that I think we've all heard and seen people talk about, "Oh my god, I have to put all this extra money into escrow. I have an escrow shortage. I have to reckon with that." That's really hard on people. It can be really jarring to people, and that day-to-day interaction of, "I have to put more money into my mortgage escrow account. That is so stressful. That means I have to spend less on groceries. I have to spend less on my kids' activities because I need more money there."
That's the reality of how people experience it in their day-to-day lives, and that's hugely divorced from the wonkiness of reinsurance shock.
Just to finish on one note, how are we going to react to this one? You talked to folks at the Mortgage Bankers Association who are very, very aware of this. There are some industries that are somewhat willfully unaware of climate change, but the Mortgage Bankers Association is very aware of the implications of this kind of stuff. What's going to happen here? How are we going to try to get around this?
We don't know the answer yet, but I think something that's going to end up being a push-comes-to-shove moment is, are there going to be people continuously willing to buy these homes? And even if there are people who are willing, are there going to keep being lenders who are willing to lend on these homes? When you start getting no's, when you start having underwriters say they're not comfortable with that, when you start having lenders say they're not comfortable with that, that's really going to be the push-comes-to-shove moment.
I don't know that we're there yet. I don't know how we'll get there, if we'll get there, but I think that's really what it's going to be. There's the chance that people get there first, that they look around their community and might have lived in one flood-ravaged home or fire-ravaged home and say, hey, I don't want to do that again. Or you might have the lender itself saying, hey, I don't want to put this on my books. I don't want to go through that again.
Of course, you can have systemic change. You can have it from the top; you can have it from Fannie and Freddie; you can have it come via Congress. But I do think that's going to be a challenge and that requires a certain political environment. One of the folks we spoke with in politics put it really well, which is that you need a disaster for people to think about it in that way.
So, I don't know that you'll get it from the top, but I do think there are people, like the Pelleys in the story, that will go, hey, I don't want to live next to that river. That is a beautiful scenic place, but I'm all set. I'll go visit. Maybe that's where some of this comes from, is just the change of human behavior. They've seen the reality of risk and they don't want to take it in their own homes anymore.
That seems like as good a place as any to leave it. Polly, where can folks find you? Where can they read your work?
I am at Bloomberg. I'm Polly Mosendz, the only Polly at Bloomberg, so you can find me there. You can also find me @PollyNYC on BlueSky or just @Polly on X.
All right. Thanks for coming on.
Thanks, Walt.
Edited by Susie Stark.
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