Peering Into a Bleak, ‘Uninsurable Future’

Property insurance premiums are skyrocketing in the face of climate shocks like the fires raging through greater Los Angeles.

As firefighters make some progress containing the unprecedented blazes still tearing through the Los Angeles area, a clearer picture of the true extent of damage is emerging. 

It’s bleak. The fires have killed at least 27 people and destroyed more than 12,000 structures, including many homes in Altadena and the Pacific Palisades. Early estimates from AccuWeather project total damages and economic loss at $250 billion. 

Traditionally, home insurance has helped cover the majority of costs for covered property owners from disasters and bad weather. However, climate change is fueling a new era of so-called “unnatural disasters,” from supercharged storms to cataclysmic flooding, that are triggering major shifts in the insurance market across the United States.

In Los Angeles, home insurance premiums have surged in recent years as wildfire risk worsens. Some companies have pulled out of the region altogether. As the still-burning infernos continue to scorch properties, many are wondering how the insurance market will shoulder the price of losses without going bankrupt, but a newly implemented plan could pass along some of the costs to policyholders. Experts expect home insurance rates to rise even higher in the wake of the fires, which researchers recently concluded were exacerbated by climate change. 

Insurance Insight: From 2011 to 2018, Dave Jones served two terms as the California insurance commissioner, where he regulated insurers amidst some of the state’s most destructive wildfires. 

He’s seen firsthand how these infernos can throw the market into disarray. 

“Insurers respond to increased losses in two ways: They raise price[s], and they reduce the amount of insurance they’re writing to reduce their exposure to losses—and they’re doing both,” Jones told me. He’s now the director of the Climate Risk Initiative at the University of California, Berkeley’s Center for Law, Energy and the Environment. 

“Insurers are finding it increasingly difficult, even at the highest prices, to make a profit,” he added. “They are reducing the writing of insurance in various places, and that phenomenon is only going to continue as climate change accelerates and as we have even more severe and frequent weather-related events.” 

In 2018, California’s most destructive fire—dubbed the Camp Fire—ripped through the northern town of Paradise, incinerating more than 18,000 structures. But the current fires in greater LA are shaping up to be the costliest in the state’s history because they have burned some of the most expensive areas in the city. That includes the Pacific Palisades, where the median home price is around $4.7 million, according to Realtor.com. As a result, insured losses are projected to be astronomical, with early estimates of up to $30 billion.

Property owners covered by private insurance companies are set to receive reimbursement under claims based on their policies. But many homeowners in LA County have had a tough time finding property insurance. Some companies, such as Allstate, have stopped writing new policies in California. 

For companies that do offer plans, insurance premiums are getting higher, largely because they have started to factor climate risk exposure into their pricing models, said Meredith Fowlie, a faculty director at UC Berkeley’s Energy Institute at Haas. 

“Historically, wildfire risk was assessed quite coarsely (e.g. at the zip code level). Increasingly, we are seeing insurers using more sophisticated [catastrophe] modeling to classify and price wildfire risk,” Fowlie, who is also a professor in the Department of Agricultural and Resource Economics at UC Berkeley, told me over email. “The adoption and use of these models can drive prices up if and when insurers learn that they have historically been underestimating climate risk exposure.” 

This phenomenon is occurring across the U.S., particularly in highly climate vulnerable places like Louisiana and Florida, which my colleague Amy Green wrote about in March. If individuals in California can’t find coverage, they may choose to sign onto the FAIR Plan, often referred to as the “last resort plan.” This system is not run by the government or taxpayer-funded, but rather a statutorily mandated, involuntary association of private property and casualty insurers, which pool together a fund that is used to help pay out claims. 

Overseen by the California Department of Insurance, the FAIR Plan mechanism is required to write insurance for those who cannot secure private insurance, but that doesn’t mean it’s free. Premiums under this plan are often high to reflect risk, and some homeowners may decide to go without any insurance at all. 

“It’s a way of keeping the private insurers’ skin in the game,” Jones said. “Private insurers can’t just cherry-pick the best risks.” Around the U.S., more than 30 states and Washington, D.C., have FAIR plan policies. 

There is usually enough money to cover claims for people under this plan, but during a nontypical year—like when a catastrophic wildfire hits—a different system could kick in for California plan holders. Last year, California Insurance Commissioner Ricardo Lara issued an order to the FAIR Plan that insurers are collectively required to pay for the first $1 billion of damage claims above what the pool of funds and reinsurance can pay, and they can collect half of that from their policyholders. If losses for people under the plan exceed this, the order enables companies to assess all policyholders in the state upon approval. 

Essentially, if losses hit a certain amount, policyholders all over California—even in areas nowhere near the fire—may have to pay an additional fee to help cover damages in LA. As of last Friday, the FAIR Plan had $377 million available to pay claims, and government officials are assuring constituents that there will be enough money to pay for losses and fulfill claims without having to trigger an assessment, The New York Times reports. However, some experts are skeptical that this will be enough to cover damages for people under the plan. 

A Climate-Shocked Market: In 2024, insured losses from natural disasters reached $140 billion as climate change “is showing its claws,” according to reinsurance company Munich Re. Consumers and companies alike are taking hits. For example, since 2021, at least nine property and casualty insurers have gone bankrupt in Florida, largely because they don’t have the money to pay out rising claims. 

“We’re marching steadily towards an uninsurable future in this country and across the globe, because we’re not doing enough to deal with the underlying cause,” Jones said. 

During his time as insurance commissioner, Jones led the implementation of the Climate Risk Disclosure Survey, which insurers must complete annually to help regulators understand how climate change affects the industry. These surveys have laid bare the extreme threats global warming poses to the market and property owners. 

Despite this, many insurance companies are investing in coal, oil and gas companies, and underwriting the fossil fuel projects that are the main contributors to rising temperatures. This has sparked backlash from climate activists, an issue my colleague Keerti Gopal recently covered in London.

States, companies and consumers are taking some steps to help fortify the insurance industry against climate shocks. For example, a rule adopted by the California Department of Insurance in 2022 requires that insurance companies must offer discounts for 12 wildfire-protection measures that property owners can take, including removing leaves, firewood and flammable objects from the home’s vicinity or making decks fire-resistant. 

However, the LA fires could push more insurance companies to pull out from the state because compounding climate risks are becoming too high, the Los Angeles Times reports. 

I asked both Fowlie and Jones what policymakers or companies can do to avoid an uninsurable future. Both had grim responses. 

“I wish I had a silver bullet answer for you,” Fowlie said. “I don’t.” 

Jones pointed back to addressing that “underlying cause” he mentioned earlier. 

“Some things we can and should do—there’s a long laundry list,” he said. “But in the end, all of that’s going to be outrun by climate change if we don’t transition from fossil fuels and greenhouse-gas-emitting industries faster and more comprehensively.”

The American Climate Corps, which the Biden administration launched in April, has “quietly been winding down the program ahead of President-elect Donald Trump’s inauguration on Jan. 20,” Kate Yoder reports for Grist. The program set out to place more than 20,000 young people in careers related to tackling the climate crisis, from disaster recovery workers to wildland firefighters. However, just because the branding of the program is disappearing doesn’t mean the jobs that were put under the ACC umbrella are—for now. 

The big challenge “is going to be a question having to do with funding for these federal programs, and the degree to which they’re going to be even allowed to say ‘climate,’” Dana Fisher, a professor at American University who has been researching climate service projects for AmeriCorps, told Grist. 

Meanwhile, confirmation hearings continue for President-elect Donald Trump’s picks for top cabinet and staff positions, including several that have key implications for the U.S.’s climate goals. Some takeaways: Doug Burgum, Trump’s choice for secretary of the Department of the Interior, praised the use of “coal and natural gas from federal lands to provide more baseload power that data centers require for round-the-clock operations,” Zack Colman writes for Politico. In a separate hearing, the nominee to lead the Environmental Protection Agency, Lee Zeldin, acknowledged that climate change “is real” and that “we have a moral responsibility to be good stewards of our environment for generations to come,” but defended Trump’s past comments denying rampant human-caused global warming. 

Aid workers in the LA area say they need cash rather than clothing as communities start rebuilding efforts amid the wildfires, Steven Kurutz reports for The New York Times. In fact, sometimes too many clothing donations can overwhelm disaster work organization efforts, according to Valentine Reilly, who lives in Boone, N.C., and co-founded State Line Resource Station, which helped with post-Hurricane Helene recovery. 

“There’s no way we have the manpower to clean, sort and organize into sizes,” she told the Times. Financial contributions can ensure that funds are going toward what people actually need in the immediate aftermath of a disaster. 

Cover photo: A house burned down during the Palisades Fire, making it unlivable. Credit: Apu Gomes via Getty Images