Good discussion.
Good report on climate disasters and the Crisis in Home insurance.
It’s not just happening in California, Florida, or Louisiana. Midwestern states are seeing rapid rise in Insurance rates, and Fed Chairman Jerome Powell told the US Senate last year that insurance costs are a primary driver of inflation.
If you think you will escape the impact of climate change, you are sadly mistaken.
It’s too soon to know the full cost of repair following this week’s disaster, which has already destroyed entire neighborhoods and killed at least five. More homes will likely be destroyed as the fire continues to burn, and many victims who lost homes will find themselves in financial distress. As big insurers try to protect their profits from natural disasters, the Southern California homeowners are left with inadequate or nonexistent coverage, industry experts say.
Just how bad is the problem? Last year, State Farm, the state’s largest insurer, announced it would drop coverage for 30,000 home insurance policies. That included about 1,600—just under 70% of total policyholders—in the Pacific Palisades neighborhood, which was hit particularly hard this week. At the time, State Farm defended the decision by saying rate hikes that had been approved by the California Department of Insurance (CDI) were not high enough to keep pace with inflation and other costs.
“Our number one priority right now is the safety of our customers, agents and employees impacted by the fires and assisting our customers in the midst of this tragedy,” a State Farm spokesman told Fortune Thursday morning.
The company is far from alone. The CDI reports that seven out of the 12 insurers with the biggest market share have cut coverage in California since 2022.
That’s the result of the increasing likelihood of paying billions in damages each year and future risk. Last week, in an effort to stabilize the market, California’s Department of Insurance announced insurers will be required to cover more homes in disaster-prone areas if they want to continue to operate in the state. In exchange, the state is allowing carriers to pass the cost of reinsurance onto consumers.
With few, if any, other options, Californians are increasingly turning to the a state-backed California Fair Access to Insurance Requirement (FAIR) Plan as a last resort. This provides more limited coverage for those who can’t find affordable, private market policies.
But state officials have been ringing alarm bells for a while that the FAIR Plan is at risk of insolvency. This week’s fires are also likely to exacerbate those issues.
And those who haven’t been able to replace their fire coverage after being dropped by their previous insurer may have to cover all of the costs of rebuilding on their own—something many residents won’t be able to afford.
“If you think you will escape the impact of climate change, you are sadly mistaken.”
Even if your house is not vulnerable to fire or flood, you might not be able to go outside because of smoke or wet bulb temps over 95°F (35°C) or mass precipitation events.