Climate Disasters Fuel Insurance Uncertainty
The author is a Junior at Madison West High School in Madison, Wisconsin, and a Director for YEPT.
Extreme weather is no new phenomenon. Still, it is increasing in both frequency and unpredictability, creating major problems for the insurance industry.
Home insurance companies use models to predict threats like extreme weather and natural disasters. Using this information and various risk assessment strategies, they calculate how much they will need to charge customers in an area in order to cover the predicted costs of the community and still make a profit.
As climate change ravages the country, from hurricanes to wildfires, insurance companies have found that they must raise premiums higher and higher as the destruction of homes becomes more frequent. Insurance companies have departed some areas altogether, including parts of Florida that are likely to become swamp or to be consumed by tsunamis in the near future and areas in California projected to be devastated once again by wildfires, leaving deserts where residents cannot find insurance. Insurance companies cannot raise their rates indefinitely; at some point, when repairing homes becomes too frequent and too costly, they must cut their losses and exit a community.
In the Pacific Palisades, the California neighborhood devastated by a series of recent wildfires, residents have increasingly been faced by the withdrawal of insurance for years now; more and more companies have concluded that the area is too risky to insure. State Farm filing records show, for instance, that 69.4% of insurance policies were not renewed in the area in 2024. Now, residents are suffering from this dearth of home insurance: those who could not afford it are left with few options to rebuild their homes and lives. The burden on those who are covered by insurance is expected to increase further as companies adapt to and attempt to cover the costs of the recent damage in the area.
The risk is twofold: not only must companies charge more to cover the expected climate change-induced risk, but the very unpredictability of climate change adds additional complexity to the issue. As weather patterns become more random and more difficult to trace, and as extreme weather events become both more common and more difficult to predict, determining how much an insurance company will need to charge in order to continue to make a profit becomes quite the feat. It’s uncertain how closely any predictions will align with reality.
With so few companies offering coverage in these areas, the lack of competition allows a company to enter the community and charge absurdly high rates — after all, residents have no other choice if they want their homes to remain insured. Since home insurance is a precondition for many loans, it isn’t merely a question of wanting home insurance, but of owning a house at all.
Fort Pierce, Fla. (Oct. 12, 2024) - Damage from Hurricane Milton. (FEMA Photo by Patrick Moore/Released)
This zero-sum game of insurance revenue is costing the lives and livelihoods of real people. With a wave of deadly California wildfires at our heels and thousands of homes being rebuilt, the question of insurance is painfully, frighteningly relevant. There may be no good answer to the coverage conundrum. For those finding somewhere to settle down for the first time, it would be prudent to avoid areas with a dearth of home insurance. However, for millions of people who already call these at-risk communities home, leaving the people and the place that they’ve come to know and love is no easy decision.
In a moment when the facts and figures of our reality are frightening beyond comprehension, when the systems designed to save us are forced to desert us, perhaps the most valuable thing we can offer is a little humanity.
