Editor’s Note: The impact of climate change has begun to impact the financial market. Insurance companies aim to make profit on risk coverage. However, if the risk for any sector runs too high, they tend not to invest in that. Nuclear reactors are a common example. Private insurance companies do not insure nuclear reactors as the associated risks are too high. With the rapidly increasing climate change, however, insurance in even the housing market has become too costly. The article describes this phenomenon.
By Tik Root/Grist
From California to Florida, homeowners have been facing a new climate reality: Insurance companies don’t want to cover their properties. According to a report released today, the problem will only get worse.
The nonprofit climate research firm First Street Foundation found that, while about 6.8 million properties nationwide already rely on expensive public insurance programs, that’s only a fraction of 39 million across the country that face similar conditions.
“There’s this climate insurance bubble out there,” said Jeremy Porter, the head of climate implications at First Street and a contributor to the report. “And you can quantify it.”
Each state regulates its insurance market, and some limit how much companies can raise rates in a given year. In California, for example, anything more than a 7 percent hike requires a public hearing. According to First Street, such policies have meant premiums don’t always accurately reflect risk, especially as climate change exacerbates natural disasters.
This has led companies such as Allstate, State Farm, Nationwide, and others to pull out of areas with a high threat of wildfire, floods, and storms. In the Southern California city of San Bernardino, for example, non-renewals jumped 774 percent between 2015 and 2021. When that happens, homeowners often must enroll in a government-run insurance-of-last-resort program where premiums can cost thousands of dollars more per year.
“The report shows that actuarially sound pricing is going to make it unaffordable to live in certain places as climate impacts emerge,” said David Russell, a professor of insurance and finance at California State University Northridge. He did not contribute to the report. “It’s startling and it’s very well documented.”
Russell says that what’s most likely to shock people is the economic toll on affected properties. When insurance costs soar, First Street shows, it severely undermines home values — and in some cases erodes them entirely.
The report found that insurance for the average California home could nearly quadruple if future risk is factored in, with those extra costs causing a roughly 39 percent drop in value. The situation is even worse in Florida and Louisiana, where flood insurance in Plaquemines Parish near New Orleans could go from $824 annually to $11,296 and a property could effectively become worthless.
“There’s no education to the public of what’s going on and where the risk is,” said Porter, explaining that most insurance models are proprietary. Even the Federal Emergency Management Agency doesn’t make its flood insurance pricing available to the public — homeowners must go through insurance brokers for a quote.
First Street is posting its report online, and it also runs riskfactor.com, where anyone can type in an address and receive user-friendly risk information for any property in the U.S. One metric the site provides is annualized damage for flood and wind risk. Porter said that if that number is higher than a homeowner’s current premiums, then a climate risk of some kind probably hasn’t yet been priced into the coverage.
“This would indicate that at some point this risk will get priced into their insurance costs,” he said, “and their cost of home ownership would increase along with that.”
Wildfires are the fastest growing natural disaster risk, First Street reported. Over the next 30 years, it estimates the number of acres burned will balloon from about 4 million acres per year to 9 million, and the number of structures destroyed is on track to double to 34,000 annually. Wildfires are also the predominant threat for 4.4 million of the 39 million properties that First Street identified as at risk of insurance upheaval.
“You don’t want someone to live in a place that always burns. They don’t belong there,” he said. “We’re subsidizing people to live in harm’s way.”
First Street hopes that highlighting the climate insurance bubble allows people to make better informed decisions. For homeowners, that may mean taking precautions against, say, wildfires, by replacing their roof or clearing flammable material from around their house. Policymakers, he said, could use the information to help at-risk communities adapt to or mitigate their risk. In either case, Porter said, reducing threats could help keep insurance rates from spiking.
Ultimately, though, Russell says moving people out of disaster-prone areas will likely be necessary.
“Large numbers of people will need to be relocated away from areas that will be uninsurable.” he said. “There is a reckoning on the horizon and it’s not pretty.”
Photo: Wildfire in Santa Clarita, California in October 2007. Photo by Jeff Turner via Wikimedia Commons
It’s kind of disingenuous for DGR to talk about climate change but not about weather modification or geoengineering. Out of all the articles in DGR, there are only 5 that mention geoengineering. and this article isn’t one of them. It is mentioned 40 times in all but only in 5 articles total and only once in four of those articles. That means it was mentioned 38 times in one article and once in 4 other articles. This is compared to the countless times the terms “climate change” and “global warming” is mentioned. Also these are terms used by the United Nations in their Agenda 21 and Agenda 2030 documents. The United Nations is a nefarious institution and should be completely discredited. Yes I know, there are many who sing its praises but with all the money they have had, Africans should all have water wells by now. Without mentioning the other side of the issue, DGR shows itself to be either uninformed or in denial. That shows that DGR is not really interested in regenerating the earth but in politics. By what you speak or what you don’t speak, so shall you be judged.
DGR is a political movement for liberation and revolution.
We aim for nothing less than total liberation from extractive economics, white supremacy, patriarchy, colonialism, industrialism, and the culture of empire that we call civilization. This is a war for survival, and we’re losing. We aim to turn the tide. We mean to win.
We do not sing the praises for the UN and especially not geo-engineering.
While I totally oppose it, geoengineering is just a symptom of a symptom of a symptom. DGR opposes industrial society, and without that, there would be neither the climate crisis nor geoengineering. You can waste your time playing Whack-A-Mole with all the symptoms that our overpopulation and lifestyles cause, or you can focus on root problem. Fixing the root problems is harder and will take a lot longer, in addition to major changes in human lifestyles, but that’s the only real solution to these problems. The rest is rearranging the deck chairs on the Titanic eventually. See this book outline for details: https://rewilding.org/fixing-humans-by-expanding-our-consciousness/
Furthermore, I see no reason to obsess on geoengineering. It’s just one of countless harms that humans are doing to the Earth ever since we started using agriculture and became overpopulated.
Oh by the way, climate change and global warming are red herring titles – the terms should be “pollution” because that is the problem and that is the cause, not the climate changing or the earth heating. They are the results not the cause. Get it right DGR.
And the cause of pollution is living industrially. That’s by far not the only great harm that humans are doing to the Earth and the life here. Humans have been doing great harm ever since we began leaving Africa and causing extinctions wherever we went, and destroying habitats and ecosystems with agriculture with its resulting overpopulation. In addition to the great harms caused by industrial living, we are now causing the Sixth Great Extinction, ocean acidification, and destruction of almost all native ecosystems & habitats, all of which are at least as bad as the climate crisis and/or any pollution.