As People Move to Climate Risk Zones – Will Insurance Companies Pull Plug?

August 4, 2021

The Hill:

Years of destructive wildfires are leaving millions of Californians at risk of losing their homeowner’s insurance — underscoring fears that climate change could soon make parts of the country uninhabitable for financial reasons.

That could lead to devastating effects for communities across the state.

“In California, insurers are saying ‘Sorry, we don’t insure your area anymore,’ ” said Carmen Balber, executive director of Consumer Watchdog, a California-based advocacy group.

To help guard against insurers letting policies expire through nonrenewals, California passed a bill in 2018 banning insurance companies from dropping consumers in fire zones from policies for one year after wildfires. The statute protected about 2.4 million policy holders last year, according to the California Department of Insurance.

The move was prompted by the tens of thousands of nonrenewals that followed the devastating 2018 fire season. According to a 2020 report by the California Department of Insurance, nonrenewals were up 31 percent statewide in 2019 from the previous year.

The numbers were particularly acute in ZIP codes with “moderate to very high” fire risk, at 61 percent, and 203 percent in the 10 highest-risk counties.

But critics say the state’s moratorium on dropping insurance policies is just a stopgap — “like trying to stop a tsunami with a fence,” said Yevgeny Shrago, policy counsel at the left-leaning group Public Citizen based in Washington, D.C.

If entire towns and regions begin to lose insurance, Shrago said, economic “death zones” could pop up long before climate change makes an area uninhabitable.

Most mortgages require property holders to have insurance. That means banks could decide homeowners are in default if an insurance company excludes a property from fire coverage.

From there, the effects could spread to local businesses and communities as a whole, Shrago said. If a home in a fire-prone area doesn’t qualify for fire insurance, a bank may not offer a mortgage to a potential seller — effectively trapping homeowners in place and cutting off the very resources needed to adapt.

The increased fire risk, particularly as a lack of insurance undercuts mortgages, could in turn drive up the cost of loans — often written against potentially uninsurable physical infrastructure — and cut off or drastically raise the price of credit.

“Now it’s harder for my community to get credit,” Shrago said, “and people are less likely to open a business. So property values start falling.”

In California, where home sales are a primary source of income for local governments, that means far less money for the sorts of climate adaptation and resilience that towns would need to manage their risk from climate change.

Challenges accessing capital or insurance are more likely to hit lower-income communities and communities of color, which already suffer disproportionately from a lack of investment.

For now, California homeowners who have lost coverage as a result of fire or through no fault of their own can access coverage under the Fair Access to Insurance Requirements (FAIR) program.

A California Superior Court judge on July 20 ruled that the state’s insurance commissioner could order FAIR to offer comprehensive plans with property and casualty insurance — as opposed to costly supplemental ones — allowing the program to serve as a one-stop shop for those cut off from fire insurance, according to The Associated Press.

But that only mitigates the problem, said Balber of Consumer Watchdog, who noted that FAIR plans can be “hundreds of times more expensive” than conventional policies.

FAIR is available in California, Oregon and Washington. Other Western states at risk from wildfire — Arizona, Colorado, Idaho, Montana and Utah — have no such program.

For Balber, this points at a larger problem: The state of California, and the West as a whole, is delegating to insurance companies the question of where people should live.

“Insurance companies are asking: ‘Are people building places that are going to burn, and should we let them anymore?’ ” she said. “We say: ‘That’s a good policy question — for state and local lawmakers.’ It’s not a question we should leave to a private for-profit insurance company.”

And baseline prices could be set to increase without much explanation to customers as to why. The state of California’s Climate Insurance Working Group released a draft report in June recommending that the state studywhether California insurers be allowed to raise rates based on proprietary “catastrophic modeling.”

Washington Post:

Tens of millions of people have been moving into flood zones around the world. The influx is as much as 10 times more than previously thought, and if the trend continues on its current trajectory millions more could suffer the impacts of flooding, according to a study published Wednesday in the journal Nature.

“People die and lose their homes and livelihood,” said Beth Tellman, a human-environmental geographer at the University of Arizona and lead author of the paper. The study estimates that up to 86 million people have moved into places where there have been floods, which Tellman says is only “the tip of the iceberg.”

Tellman and her colleagues collected satellite imagery of 913 large flood events around the world, from 2000 and 2018. The database included floods from rivers, tropical storms, melting ice and snow, as well as dam or levee breaks. Researchers then compared the population of the flooded areas between 2000 to 2015.

The change in population in flood zones varied by location. In Russia and Sri Lanka, for instance, the number of people living in those areas shrank. Jamaica stayed about the same. But many places, such as Bangladesh and India, saw large increases — of up to 14.3 million and 44.8 million people, respectively.

Overall, the paper found that the population of flooded areas grew at nearly twice the average global rate. Proportionally, as much as 24 percent more people lived in those areas by 2015. Previous estimates, Tellman said, put the number closer to about 2 percent.

“If people are moving into places that flood, it’s going to flood again,” said Tellman, noting the areas they examined flooded an average of about three times since 2000. That, she said, can lead to not only loss of life and property, but longer-term setbacks in economic development. “It’s only a matter of time.”

5 Responses to “As People Move to Climate Risk Zones – Will Insurance Companies Pull Plug?”

  1. Kevin Hester Says:

    Another entry in my blog post titled “The Insurance Industry, soon to be the first pillar of Capitalism to succumb to Abrupt Climate Change”.

    The Insurance Industry, soon to be the first pillar of Capitalism to succumb to Abrupt Climate Change

  2. redskylite Says:

    Certainly, many risks are increasing when 1 in a 100 and 1 in a 1000 years rainstorms occurs regularly, fires rage and droughts endure. A spectrum of insurance is on a tightrope.


    “Higher temperatures attributed to climate change caused payouts from the nation’s biggest farm support program to increase by $27 billion between 1991 and 2017, according to new estimates from Stanford researchers. Costs are likely to rise even further with the growing intensity and frequency of heat waves and other severe weather events.”

    • rhymeswithgoalie Says:

      A lot of economic systems which work by small margins can utterly collapse with a seemingly minor change takes place. A household that can handle a $200 car repair every 18 months may not notice that the failure frequency starts moving to every 16 and then every 12 months. It’s the reverse of the “miracle” of compound interest.

      In these cases, we seem to have reached a point where the change has gone from unnoticeably gradual to sudden jumps.

  3. Brent Jensen-Schmidt Says:

    Will insurance companies pull the plug? Hell yea!
    Will times be interesting? You bet!
    What to do about it? Best of luck!

  4. rhymeswithgoalie Says:

    For Balber, this points at a larger problem: The state of California, and the West as a whole, is delegating to insurance companies the question of where people should live.

    Nope. Not buying it if it means that the state effectively tells insurance companies to subsidize people living in flood- or fire-prone areas. When the insurers stop insuring, it’s like the coal-mine canary stops singing. Allowing people to “insure” homes for well below the actual level of risk is like playing a recording of the canary to pretend there’s no problem.

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