The Washington Post – Climate Change is Fueling an Insurance Crisis. There’s No Easy Fix.


In California, State Farm and Allstate recently stopped selling new home insurance policies after years of catastrophic wildfires. In Louisiana, at least seven insurance companies have failed since Hurricane Ida. And in Florida, most big insurance companies have already pulled out of the storm-battered state.

In these disaster-prone states, the climate crisis is fueling an insurance crisis, leaving homeowners struggling to find affordable coverage. Yet policymakers have few easy fixes at their fingertips.

“None of the solutions here are easy,” said Benjamin Keys, a professor of real estate and finance at the University of Pennsylvania’s Wharton School who has studied the effects of climate-change-fueled disasters on insurance markets.

new federal report, released today by the Treasury Department’s Federal Insurance Office, reinforces this conclusion. While it offers 20 recommendations for state insurance regulators, it acknowledges that the Biden administration has limited authority to compel these changes, a Treasury official said on a call with reporters yesterday.

If you’re a homeowner in California, Florida or another disaster-prone state, you may be wondering: What can policymakers do to make it easier — and cheaper — for folks to get insurance?

Here are three possible solutions, along with related challenges:

1. Update California’s wildfire models

In 1988, California voters passed Proposition 103, which requires insurance companies to get approval from the state Department of Insurance before charging new rates.

Under Prop 103, when insurance companies try to justify higher rates, they aren’t allowed to cite the increased risk of wildfires due to climate change. Insurance industry officials say this policy makes no sense today, and they’re calling on the state to update it.

“In Florida, they’re modeling for hurricanes, and in the Tornado Alley states, they’re modeling for tornadoes. So in California, they obviously should be modeling for wildfires,” said Mark Friedlander, a spokesman for the Insurance Information Institute, an industry group.

But consumer advocates generally oppose letting insurance companies use wildfire models, fearing the companies will rely on them to rationalize extreme and unwarranted price hikes.

“This has nothing to do with climate change; it has to do with the industry’s greed and its 35-year campaign — so far unsuccessful — to escape the requirements of Prop 103,” Harvey Rosenfield, the founder of Consumer Watchdog, which spearheaded the campaign to pass Prop 103, told the Los Angeles Times.

California already has some of the highest housing costs in the country. And the price of building and rebuilding homes in fire-prone areas has skyrocketed in recent years, leading to “gentrification by fire,” as our colleague Scott Wilson recently reported.

About a week-and-a-half after State Farm announced it would stop offering new coverage in California, the state’s insurance department said it would hold a public workshop on the use of fire models before considering potential regulations. The workshop is scheduled for July 13.

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