What is going on here?
The LA wildfires are predicted to be a catalyst for insurers pulling out of high-risk regions across the globe. More and more businesses and homeowners may soon find they live in uninsurable locations.
At the time of writing, the LA fires are slowly being contained by fire-fighting efforts. With the immediate danger receding, the longer-term impacts are being felt beyond the California coast.
What does this mean?
In 2023, insurance giants State Farm and Allstate announced they would stop writing new policies for California homeowners. But this trend isn’t just seen in the United States. As the climate crisis increases wildfire risk across the globe, insurance companies are either pulling policies or making insurance so expensive it’s not accessible to most homeowners.
Between 2022 and 2024, insurance costs in Australia rose by 28%. A report by the Climate Council predicts that by 2030, over 4% of the country will be uninsurable. As California starts to recover, Australians are studying the LA insurance market for parallels to their own insurance crisis.
In another region, UK homeowners are getting renewable quotes with an average 42% increase. While some of the global insurance rates increase can be attributed to rising costs of labor and materials, it is also affected by rising extreme weather events.
Why should we care?
The pattern between rising global temperatures and frequent, more severe natural disasters is now well recognized. Investors have long reported the connection between climate change and the insurance market. As extreme weather events cost insurance companies billions in claims, they raise premiums and exit high-risk regions,to reduce their exposure to high claims and shore up profits.
As more and more “unprecedented” natural disasters occur, the insurance burden for these regions will fall to our governments. In the meantime, homeowners around the world should expect a continued increase in premiums. To quote an unidentified Australian Broker, “the insurance companies are out of control.”
Be curious!
- Read more about it! Last week, Curious Earth reported about the interaction of extreme weather events as a key to understanding, predicting, and mitigating the climate crisis.
- Become an expert. Understanding Disaster Insurance by Carolyn Kousky provides an accessible introduction to the complexities—and exciting possibilities—of risk transfer markets in the U.S. and around the world.
Featured image by Jen Theodore, via Unsplash.
