Ever since the words “insurance premium” began appearing on contracts in the Republic of Venice in 1255, modern global trade and now our broader society depend on insurance to mitigate risk of loss to enterprises and individuals for their business and personal property.
But as insurers retreat from areas made too risky for them by wildfires, hurricanes and floods supercharged by climate change, it becomes difficult to build new dwellings or continue operating businesses in disaster-prone areas.
A recent report complied by Deep Sky, a carbon removal company, illustrates just how bad things are getting in California. The key findings:
- Home insurance premiums have shot up 42% in the most fire prone areas of California [since 2009]
- One in five homes in extreme fire risk areas of California has lost coverage since 2019.
- Spring fire risk in the US Southwest and Northern Mexico has reached a ten-year record.
Not only are insurance premiums rising, but insurers are abandoning homeowners altogether with polices declining by 19 percent in the riskiest areas between 2015 and 2023. Some of the drop is insurers simply refusing to renew policies after they expire. Some 150,000 California households are now uninsured.
As the private insurance companies have withdrawn, the state of California has stepped in with its own plan to insure homeowners. The California FAIR plan essentially subsidizes homeowner insurance for California residents who can’t get private insurance. (It’s worth noting that the FAIR plans are bare-bones coverage for the dwelling only and exclude personal property, liability protection, and additional living expenses. Homeowners have to buy separate policies for that coverage.)
At least part of the funding for that subsidy is taken from private insurers via state assessments paid into the plan. That is leading to a cascade. As private insurers costs rise due to these assessments, they pass these along to policyholders who may find rising premiums force them to seek the more affordable insurance in the FAIR plan.
In addition, if claims to the state’s FAIR plan exceed its resources, the private insurance companies are forced to make up the difference. This means the risk to the entire system continues to rise. There may come a day when California’s combined home insurance sellers including the state’s FAIR plan won’t be able to pay full claims after a series of catastrophic events.
Simply moving liability to the government will not solve the problem and, in fact, may hasten the exit of private insurers from California as the payments they must make to the state to subsidize its plan grow larger. This is how insurance goes away, bit by bit. Addressing the issue, of course, means addressing climate change head on which we as a global society do not seem to want to do. That portends that large areas made uninsurable by climate change may end up abandoned.
Comments
Welcome to the new Resillience commenting system!
We have moved from the former Disqus commenting system to a new system as of September 10, 2026.
We made this change because of privacy concerns regarding Disqus. It's also part of a set of changes to bring more services to the Resilience community under a single login: commenting, (coming September 2026), and online courses (coming 2027). Unfortunately, your old Disqus comments may not reliably link to your account in this new system. Please contact us if you have any questions or concerns.
i have two issues with this piece. one is saying insurance premiums have gone up 40% since 2009. But haven't prices in general gone up about that much? Second, all the talk about 'fire-prone areas' and 'high risk' places implies that disasters are predictable. Generally we can say the west and southwest are drought and fire-prone and where i live in West Virginia is more flood-prone–but can you really say THIS CA neighborhood is at high risk…and not have next year's biggest fire disaster somewhere else entirely? we do sometimes have fires here, and floods in CA…seems to me a key problem in coping with climate change is the unpredictability.
This misses the bigger picture completely.
It isn't just climate – it's the end of growth, and the underwriting of combined risk is therefore increasingly moot. How do you insure a business that is becoming increasingly restricted? How do you insure the whole collection (which is what the re-insurers do)?
You can't. Which is why more and more are relinquishing their policies… Climate is merely one facet.
Good point. The end of growth, and return providing investment opportunities, is gorilla in every room in the building.
forest mismanagement and the failure of the pg&e et al to maintain high voltage lines and towers are the immediate cause of this issue.
the choice to repeatedly rebuild housing/commerce in fire-prone areas is also a larger factor than climate change.
and one also has to add in the actual nature of insurance companies (delay, defund, deny), and the fact that inflation of 'real' replacement costs has reduced profits.
is climate change a factor? maybe. making everything about climate change dilutes your argument, in my opinion.
Senator Sheldon Whitehouse has been sounding the alarm of what happens to the insurance industry (and the cascading impacts on mortgages, home value, and the banking industry) as climate change worsens. Whitehouse urged Treasury Secretary Scott Bessent to heed the warnings of a looming economic crisis brought on by climate change. It's worth listening to his speech on the topic. You can also find more at his Senate website below.
https://www.youtube.com/watch?v=oab_Odv-Y9w
https://www.whitehouse.senate.gov/news/speeches/time-to-wake-up-292-the-looming-economic-catastrophe-if-climate-change-left-unchecked/