By Christopher Flavelle, Jill Cowan and Ivan Penn | The New York Times
The climate crisis is becoming a financial crisis.
This month, the largest homeowner insurance company in California, State Farm, announced that it would stop selling coverage to homeowners. That’s not just in wildfire zones, but everywhere in the state.
Insurance companies, tired of losing money, are raising rates, restricting coverage or pulling out of some areas altogether — making it more expensive for people to live in their homes.
“Risk has a price,” said Roy Wright, the former official in charge of insurance at the Federal Emergency Management Agency, and now head of the Insurance Institute for Business and Home Safety, a research group. “We’re just now seeing it.”
In parts of eastern Kentucky ravaged by storms last summer, the price of flood insurance is set to quadruple. In Louisiana, the top insurance official says the market is in crisis, and is offering millions of dollars in subsidies to try to draw insurers to the state.
And in much of Florida, homeowners are increasingly struggling to buy storm coverage. Most big insurers have pulled out of the state already, sending homeowners to smaller private companies that are straining to stay in business — a possible glimpse into California’s future if more big insurers leave.
Growing ‘catastrophe exposure’
State Farm, which insures more homeowners in California than any other company, said it would stop accepting applications for most types of new insurance policies in the state because of “rapidly growing catastrophe exposure.”
The company said that while it recognized the work of California officials to reduce losses from wildfires, it had to stop writing new policies “to improve the company’s financial strength.” A State Farm spokesman did not respond to a request for comment.
Insurance rates in California jumped after wildfires became more devastating than anyone had anticipated. A series of fires that broke out in 2017, many ignited by sparks from failing utility equipment, exploded in size with the effects of climate change. Some homeowners lost their insurance entirely because insurers refused to cover homes in vulnerable areas.
Michael Soller, a spokesman for the California Department of Insurance, said the agency was working to address the underlying factors that have caused disruption in the insurance industry across the country and around the world, including the biggest one: climate change.
He highlighted the department’s Safer From Wildfires initiative, a fire resilience program, and noted that state lawmakers are also working to control development in the areas at highest risk of burning.
But Tom Corringham, a research economist with the Scripps Institution of Oceanography at the University of California San Diego who has studied the costs of natural disasters, said that allowing people to live in homes that are becoming uninsurable, or prohibitively expensive to insure, was unsustainable.
He said that policymakers must seriously consider buying properties that are at greatest risk, or otherwise moving residents out of the most dangerous communities.
“If we let the market sort it out, we have insurers refusing to write new policies in certain areas,” Dr. Corringham said. “We’re not sure how that’s in anyone’s best interest other than insurers.”
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