Insurance Giants Withdraw from California Amid Climate Change-Driven Fires
Residents Struggle to Find Coverage in the Wake of Wildfires
Sassan Darian returned to the ruins of his Orange County residence in mid-May to prepare for its reconstruction, but he’ll have to do so without the financial support of his insurance company. Amid a season of wildfires that lasts at least six months in California, two major US insurance giants have pulled coverage from the state, impacting a hot real estate market and leaving some residents struggling to find protection from natural disasters.
Allstate and State Farm Pulling Back From California
The end of May brought news that State Farm, in operation for more than a century, had stopped selling personal and small business accident protection in California, citing production costs and a greater exposure to catastrophe. In November 2020, Allstate also stopped offering home insurance coverage in the state, with a third of its estimated 3.6 million California customers residing in high-risk fire areas. Allstate is now seeking state approval to increase prices for current customers an average of 40%.
Market Trends May Be Setting Dangerous Precedents
Consumer advocates worry the insurers’ pullback is a sign that some areas will become uninhabitable in the face of climate change. Columbia University’s Lisa Dale, author of the book Climate Change Adaptation, warns that insurers’ continued coverage of high-risk areas may be a negative, as the danger may become less visible and people may not understand the potential threat they face.
Insurance Models Unsustainable in the Face of Climate Change
Dr. Marco Tedesco, a climate change expert at Columbia’s Lamont-Doherty Earth Observatory, says the current insurance model is unsustainable given regions with no historical data to base projections off of in the face of unexpected climate phenomena. Insurance giants may soon have to pivot and adapt to adequately account for climate change and its accompanying risks.
Residents and Consumer Advocates Fight Back
Consumer groups in California have pushed back against the insurance giants’ decisions, arguing State Farm has increased its yearly rates a whopping 6.9% over the past five years, and that payouts to claimants are much lower than those in other parts of the country. A lack of coverage and increased pressure on regulators to approve huge premium increases without any scrutiny are concerns for critics of the insurance industry in California and across the US.
In short, the insurance industry’s current model is insufficient to deal with the risks of climate change, and consumers are feeling the brunt of the policy shifts enacted by Allstate and State Farm.
