Affordable home insurance is getting increasingly hard to find in wildfire-prone areas in the West. Climate change, along with flammable fuel buildup, is causing bigger, more frequent and more destructive wildfires, putting more and more homes at risk. Meanwhile, climate change is also driving other costly disasters, such as hurricanes and flooding.
In response, insurance companies are raising individuals’ rates, sometimes by thousands of dollars per year. They’re even dropping some policyholders altogether — right before fire season. According to a report from the nonprofit climate research firm First Street Foundation, 39 million homes nationwide are at risk of losing their insurance due to climate hazards.
Dave Jones, who served as California’s insurance commissioner from 2011 to 2019, has some ideas that could help the situation. As commissioner, he was responsible for regulating the nation’s largest state insurance market. Today, Jones is the director of the Climate Risk Initiative at the University of California Berkeley law school’s Center for Law, Energy, & the Environment.
High Country News recently caught up with Jones to ask about insurance companies’ response to climate change, nature-based solutions in insurance modeling, what a better insurance system in the face of wildfire could look like and more. (This conversation has been edited for length and clarity.)
High Country News: Across the West, people are getting notices in the mail saying their homeowners’ insurance premiums have gone up, in some cases, substantially. Why is this happening?
Dave Jones: In two words: climate change.
HCN: Can you expand on that?
DJ: Certainly. As we have failed to combat climate change, temperatures are rising in the West, throughout the United States and across the globe. The increase in temperatures is resulting in more severe and frequent weather-related catastrophes. That’s killing people and injuring people and destroying communities. It’s also making it challenging for insurance companies to keep writing insurance in some parts of the United States and make money.
Until we stop using fossil fuels and reduce greenhouse gas emissions associated with other sectors of the economy, we’re going to continue to march steadily toward an uninsurable future.
According to a report from the nonprofit climate research firm First Street Foundation, 39 million homes nationwide are at risk of losing their insurance due to climate hazards.
HCN: Some companies have stopped issuing new policies entirely in some states. State Farm said it would stop accepting new applications for property insurance in California in May, and Allstate followed suit, halting the sale of new home, condo and commercial property insurance. What was your reaction to that news?
DJ: Sadly, I predicted this is where we would end up when I was insurance commissioner back in 2015 and 2016. The good news in California is they haven’t pulled out of the market entirely. In Florida, five companies have pulled out of the market entirely.
HCN: What can we — and insurers — do differently?
DJ: We have to be more aggressive in moving off of fossil fuels and reducing greenhouse gas emissions as the number-one priority.
Insurance can help here. U.S. insurers are collectively investing about $536 billion in the fossil fuel industry. Why are insurers investing in the very sector that’s resulting in the insurers’ demise and their inability to write insurance in certain geographies? One thing insurers could do would be to transition out of fossil fuels and other high greenhouse gas-emitting industries as an investor. Insurers are also insuring fossil fuel infrastructure. So another way insurers could help is by transitioning out of providing insurance for fossil fuels.
HCN: Do insurers take into account the ongoing wildfire risk reduction work, like thinning and prescribed burning, happening across the region? If not, should they?
DJ: There are a number of nature-based investments that have been empirically proven to better protect people, communities and also reduce insurance losses. Unfortunately, insurance companies’ underwriting models — the models they use to assign a risk score to homes and condominiums and businesses to decide whether or not to write the insurance — don’t account for landscape-scale forest management. Getting the insurers to recognize that these things reduce risk, and then to make decisions to write insurance accordingly, is an important way to keep insurers in the market in California and other Western states with regard to wildfire. Insurance is regulated at the state level, and states need to insist that insurance companies’ modeling accounts for the risk-reduction benefits of nature-based investments.
(Reporter’s note: Recently proposed changes to California’s insurance regulations may allow insurance companies to include wildfire-preparedness measures, such as safety certifications and prescribed burns, in their pricing models.)
HCN: If insurance did start including steps that landowners and land managers take to reduce wildfire risk, could it be a force for good, motivating such improvements?
DJ: Absolutely. Not only is that a way to keep the insurers in the market, but it also encourages residents of those communities to support their legislators, whether federal or state, to put more money into forest management.
HCN: In the meantime, people still need insurance, and some can’t pay major premium increases. What can states do to help protect people living in high-risk areas?
DJ: States are and should continue to enact the strongest possible building codes and then also provide funding to help people retrofit their homes. Using roof materials that are more impervious to wildfire, protecting the eaves of the home from embers, making sure you have defensible space, there’s a long list of things. Some people are on fixed incomes and need assistance in hardening their home. A role that state policymakers can play is helping those people that are on lower incomes and own a home or condominium to undertake the home hardening.
Until we stop using fossil fuels and reduce greenhouse gas emissions associated with other sectors of the economy, we’re going to continue to march steadily toward an uninsurable future.
HCN: Where do state “insurance of last resort,” known as Fair Access to Insurance Requirements or “FAIR,” plans, fit into the wildfire insurance conundrum?
DJ: They are an important state policy response to the challenge that insurers are having to write insurance in areas where there are climate change-driven losses. The people that have to go to the FAIR plan in the state are the people that private insurance is saying, “You’re too risky to cover anymore,” (or that were priced out of other options).
Even though it’s expensive, I would argue strongly against artificially suppressing the rates of the FAIR plan, because then you start sending the wrong signal about the risk in certain areas due to climate change.
HCN: Could state or federal governments subsidize policies for low-income people? How would that work?
DJ: To the extent that there are seniors on fixed income or low-income households in areas that are being forced to go to the FAIR plan and they can’t afford it, you could do something similar to what was done with the Affordable Care Act. You could have a premium subsidy, but not suppress the price.
HCN: There’s also the problem of people’s insurance not covering what they thought it would after a wildfire. For example, homeowners affected by the Marshall Fire in Colorado could be a combined $155 million short in insurance coverage. How do we keep that from happening again?
DJ: When I was insurance commissioner in California, one thing I did was to issue a regulation that required insurers to do a replacement cost calculation for your home or your condominium and provide that to you. Insurance didn’t like that so much. They sued me to challenge it; we were successful in prevailing in court. And so now, at least in California, you can ask your insurer, “Hey, can you do a replacement-cost calculation based on the labor costs and the material costs in my area, so I can have a fighting chance to figure out how much I need to insure to now?” You can also go out independently and have a contractor do that for you. Other states could require insurance to provide a replacement cost estimate and make that available whenever anybody is shopping for home insurance.
HCN: What would an ideal home insurance landscape look like, a decade from now?
DJ: I hope that starting now and going forward, we take the steps necessary, across the globe, to reduce utilization of fossil fuels and reduce greenhouse gas emissions so that we at least arrest the temperature rise. That gives us a fighting chance to keep insurance available in many parts of the United States where it’s becoming unavailable. That’s where I hope we will find ourselves, but I’m not terribly optimistic given the trend lines that we see currently.
HCN: You seem to be saying: “Get to the root of the problem.”
DJ: Exactly. I mean, it reminds me of that campaign manager for a presidential campaign in ’92 who said, “It’s the economy, stupid,” right? Well, you can substitute the economy with climate change. That’s what’s really driving this insurance issue. And that’s fundamentally what we need to address.
Kylie Mohr is a correspondent for High Country News writing from Montana. Email her at kylie.mohr@hcn.org or submit a letter to the editor. See our letters to the editor policy.
This article appeared in the print edition of the magazine with the headline Homeowner’s insurance is going up in smoke.
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