TEXT OF STORY

Kai Ryssdal: The weather forecast for Cancun, Mexico, today was mostly sunny, 81 degrees. So if United Nations climate negotiators don't make any progress, at least there's always the beach. It's early yet in the U.N.'s two-week global warming conference; we're on day two of the meeting. But not much is really expected to happen by the end of the thing, anyway. It's a complicated business, this whole idea of coping with a changing climate. Because basically, you're changing everything -- from re-figuring the fundamentals of our energy supply to helping poor countries figure out how to adapt to a warmer world. Policymakers, so far, have mostly decided they can't decide what to do. So businesses have been stepping in.

Not only does Marketplace's Scott Tong get to spend two weeks in Cancun, reporting on the conference itself, but before he left, he took a little side trip to the island of Grand Bahama for this story about insurance and an unstable climate.

Sound of water lapping

Scott Tong: I know what you're thinking. But this story comes to you from the other side of Grand Bahama. The rocky north shore, four miles from the nearest rum cocktail. I checked.

The Queen's Cove area of canals and mangrove trees has taken a royal beating from Mother Nature. Ask resident Katherine Bellott. Her two-story house features a sign out front that reads "Hurricane Hole."

Katherine Bellott: It was pretty amazing...

Bellott recalls Hurricane Frances from 2004. How the storm surge put her house under five feet of water, how her husband tried to protect their family boat.

Bellott: He decided when he saw the hurricane coming to sink it, so it wouldn't fly all over the place. When the hurricane was finished and we came home, the boat was in the neighbor's yard.

As for the neighbor's house...

Bellott: The only thing we saw there was the tile floor and maybe a toilet. The actual house was gone.

Hurricane Jeanne followed Frances two weeks later. And together, they huffed and puffed and blew away the insurance companies. Every insurer pulled out of Queen's Cove, so now no one here has coverage for wind damage or floods.

Simon Young at insurance consultancy Caribbean Risk Managers says the area's too exposed, too low-lying.

Simon Young: Storm surge at the coast is the big issue. The general feeling is that it's going to get worse as the oceans warm up. The potential for bigger, more aggressive hurricanes increases, as well as sea level rise. And those two factors together increase the storm surge hazard.

Young says that risk is also rising on the east coast of the U.S. More broadly, he says for the insurance sector, the basic debate over climate change ended years ago.

Young: Industry has accepted absolutely that climate change is real. There is no debate either at the management level or at the technical level as to whether climate change is going to have an impact on their industry.

The consulting firm Ernst & Young considers climate change the greatest strategic risk to property casualty insurance firms.

Now, these companies don't like to skip out on any neighborhood. So when they do, economists call it a "market signal." And the message, loosely translated, is, "What are you people smoking? Live here at your own risk." And the housing market's heard it. If you want to buy in Queen's Cove, you can't get insurance, so the bank won't give you a mortgage.

Again, resident Katherine Bellott.

Bellott: So a lot of people have just walked away from their homes. They're just left there. And then you have some people who sold for next to nothing.

Those who stayed are changing the way they live, since they're now on the hook for everything. Most new houses are built on stilts, literally higher ground. The walls are made of cement, roofs steel. And this is how adaptation to an uncertain climate happens here -- not because politicians or scientists saying so, but because people can't afford not to.

UCLA economist Matthew Kahn is the author of "Climatopolis."

Matthew Kahn: The first idea in economics is people pursue their own self-interest. And by pursuing their own ruthless self-interest -- moving to higher ground, rebuilding their homes to protect them in floodplains -- all of these strategies will reduce the suffering.

Investors are starting to hedge against Mother Nature, too. Shareholders and federal regulators are demanding companies disclose how future regulation of greenhouse gas emissions would hurt their bottom line.

Michael Greenstone: They think it's inevitable that there will be regulation of carbon.

Economics professor Michael Greenstone at MIT says the investors are ahead of the policymakers.

Greenstone: Financial markets have an excellent way of aggregating information and reading the future in a much more reliable way than I think political pundits often do. And the reason is that money's on the line.

But here's the thing, these market signals can only be felt in free markets. As opposed to say...

Sounds from a night club -- music, shouting

Florida. At South Beach in Miami, insurance firms are screaming that they need to raise premiums, based on coastal risk. The state acknowledges rates are in some areas severely underpriced. But the regulators won't hike them.

Local insurance broker Alex Soto.

Alex Soto: We're not being allowed to charge an actuarially sound rate. So suppressing that artificially for political reasons in effect keeps the private insurance companies away.

Price controls have led national insurance firms to exit risky Florida. So the state of Florida has stepped in, providing cut-rate insurance as a kind of safety net.

But Simon Young at Caribbean Risk Managers says that distorts the market signal. So people don't adapt to what the industry considers climate risk. They keep living and keep building in harm's way.

Young: The regulatory environment in the U.S. is protecting the consumer, they think, from paying too much. But actually it's from paying a fair price for the risk that they're taking. And unfortunately, that's led to overdevelopment or, potentially in the long-term, unsustainable development.

The failed market means the insurance industry can't do what it considers its job: To give early warning signals of risk, change, and potentially, disaster.

I'm Scott Tong, for Marketplace.