How will home insurance change after LA's fires?

The California fires have devastated Los Angeles. They may also wreak havoc on the insurance industry: Experts say total losses will reach $250 billion or more.

The fires have laid bare an "insurance crisis" in California, said The New York Times. Even before the fires, climate risks like hurricanes and tornadoes were "pushing up premiums around the country." But big companies were still losing money in some states, and even withdrawing from the market entirely in disaster-prone regions. The accumulation of calamities could be a tipping point: "We are marching steadily towards an uninsurable future in this country," said Dave Jones, a former California insurance commissioner.

The fires hit just as a big policy change was taking place in California. New regulations allow insurers to base premiums on "forward-looking models of climate risk" instead of historical data, said NPR. (The climate risks of the near future will look different than the past, after all.) The tradeoff is that insurers agreed to write more policies in fire-prone areas — and to lower rates where "fire-mitigation efforts" reduce the risk. "Insurance can no longer be an afterthought" in the debate over climate, said current California Insurance Commissioner Ricardo Lara.

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What did the commentators say?

The insurance crisis in California is a "warning for America," The Washington Post said in an editorial. The state's new regulations will create even higher premiums that will be "painful for homeowners." States and cities can keep some of those costs at bay if they "shore up and enforce building codes" to improve fire resistance, as well as enforce rules for buffer zones to help contain fires. What they can't do is make insurance companies lose money with artificially low premiums. Climate change is "crushing insurance markets."

"This isn't just a California problem," Mark Gongloff said at Bloomberg. Other states on the "front lines of climate change" are underinsured for the more frequent and more intense disasters created by that warming. The problem has ballooned to the point where there could be as much as $1 trillion in potential losses "from floods and fires alone." It's time to start "reorganizing how society thinks about property risk," said Gongloff. Sooner or later, that decision "will be forced on us."

What next?

There are "no easy solutions to the problem" of insurance in the climate change era, said Dana Nuccitelli at Yale Climate Connections. One option is a "managed retreat" from disaster-prone areas. That's a tough proposal because "people tend to have strong attachments to their homes." But it has been done before. After floods in 2017 and 2019, Quebec gave homeowners a choice: Use disaster money to rebuild elsewhere or agree not to take disaster payments in the future. The best option, though, would be "reaching net zero global climate pollution" to put a halt to global warming, Nuccitelli said. Until then, "extensive efforts" will be needed to keep the insurance crisis from getting worse.