The impact of climate change extends beyond the threat of wildfires, floods or extreme weather events. It also is throwing the insurance industry into chaos and often leaving property owners without coverage.
As the website for the state Office of the Insurance Commissioner explains: “Some insurers have now stopped offering certain types of insurance coverage. Many insurers have limited the types of coverage they offer. This has led to higher premiums, to the point of being unaffordable to some consumers. As a result, some people buy policies that don’t provide as much coverage as they need. Others go without insurance.”
Last year, State Farm announced that it would not accept new applications for business or property and casualty insurance in California. The company, which ended 2023 with a value of $134.8 billion, cited “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”
In a 2022 report, company officials wrote, “A changing climate introduces more risk and uncertainty into the lives of our policyholders, particularly regarding the frequency, severity and location of catastrophic weather events.”
Also last year, several large insurance companies announced they would halt coverage for damage from hurricanes, wind and hail while also limiting coverage along coastlines and wildfire-prone areas.
When coverage is obtainable, it often comes with premiums that are out of reach for many residents. In Florida, the average homeowners insurance costs four times the national average and has increased more than 40 percent in the past year. At least 30 insurers have left the state or have reduced coverage in recent years.
All of this is reflected in stories out of rural areas of Spokane County that were hard hit by wildfires last year. As reported by The (Spokane) Spokesman-Review, victims of the blazes in many cases have found that they were underinsured and that their premiums are quickly increasing because of a growing threat.
That threat can be seen in the Federal Emergency Management Agency budget. Spending from the Disaster Relief Fund, adjusted for inflation, has increased 150 percent in the past two decades as the intensity of extreme weather events has surged.
Federal assistance in the wake of a disaster often is viewed as a last resort. Most property owners like to think they will never need help from their insurance, and if they do, they are in good hands. The goal of insurance is to spread out the costs of repair and recovery among all policyholders.
But as David Sampson of the American Property Casualty Insurance Association told The Washington Post: “There’s no place to hide from these severe natural disasters. They’re happening all over the country and so insurers are having to relook at their risk concentration.”
While premiums are subject to scrutiny from state regulators, companies are largely free to act in the best interests of their policyholders and — for publicly traded companies — their stockholders. But government can play a role in creating a market that makes property insurance attainable.
In Washington, that includes efforts from the Department of Natural Resources to help owners make their homes less susceptible to wildfires. At the national level, it should include tying disaster relief to resiliency strategies and infrastructure improvements.
A stable insurance industry is necessary to reduce the impact of climate change and to speed recovery when disaster strikes.
