The Home Insurance L.A. — and America — Needs
The recent wildfires in Los Angeles serve as a stark reminder that reliable home insurance is increasingly becoming a thing of the past. The exodus of insurance companies from areas prone to natural disasters is putting the American dream of homeownership at risk. This issue calls for immediate action from the government to help safeguard both home insurance and homeownership in an era of climate catastrophe.
Nick Mott, a podcast producer, radio journalist, and print journalist, and co-author of the book “This Is Wildfire: How to Protect Yourself, Your Home, and Your Community in the Age of Heat,” notes the severity of the current situation. “In LA right now, we have one of the most damaging wildfires in the state’s history. At the time I’m recording, there’s been more than 12,000 structures destroyed, at least 24 people dead, and likely a lot more to come, because the winds and the destruction is not over yet.”
Insurance companies are struggling to cope with the rising costs associated with climate change, which can lead to bankrupting payouts. California, for example, has experienced an insurance crisis for years largely due to wildfires. Many large insurers have either pulled out or changed their policy offerings in the state, leaving hundreds of thousands of people unable to secure traditional homeowners’ insurance. The stress on the industry is only expected to increase.
Homeowners insurance was designed to deal with isolated events such as a tree falling on a house or an appliance fire. The industry is not prepared for the scale of community-level disasters now faced, which can cost insurers billions.
A 2024 Senate Budget Committee report warned that the insurance crisis, fueled by climate change, could result in a crisis comparable to the Great Recession of 2008. A fundamental issue is people’s ability to afford homes. Without insurance, mortgages become impossible to obtain, leading to a decline in home values and threatening what many consider the American dream. The real problem is a collapse in property values originating from the climate change-related insurance crisis.
The solution, as Mott argues, is a national system of catastrophe insurance covering not just one type of event, but a wide range of natural disasters: wildfire, flooding, erosion from sea level rise, and extreme storms, among others. This system could require people in high-risk areas to purchase this national climate catastrophe insurance.
Under this system, payouts would come from public-private partnerships or a model similar to the National Flood Insurance Program. Private insurers would continue to offer private insurance, but the federal government would cover major payouts. The government could use innovative mapping and artificial intelligence to restrict development in the most vulnerable areas. Incentives to retrofit homes for fire resistance, or even managed retreat from areas that are at a high risk, would add to the solution.
This proposed national insurance policy is unprecedented. We see some potential downsides with the National Flood Insurance Program, which is already in significant debt. A national catastrophe insurance system could help by diversifying the risks and getting more people contributing to the system, easing the financial burden on taxpayers.
Other countries, such as France, Spain, and New Zealand, have natural catastrophe systems currently in place. The U.S. could learn from these existing models. Public-private partnerships could lead to innovations.
In California and other parts of the country, individual areas are trying to solve these problems with regulation and other measures. For example, California has created its own insurance pool, called FAIR, which provides insurance if it is unavailable elsewhere, though it comes at a high cost and with limited coverage.
Nonprofits and local groups have worked with insurers on innovative ways to offer individualized insurance, incentivizing homeowners to reduce their vulnerability to fire. A larger scale approach is needed considering the exodus of insurers in locations like Oklahoma and the pooling of risks from flooding, sea-level rise, extreme storms, and wildfires in states like Florida, Louisiana, and North Carolina.
Natural disasters can easily be dismissed as unlikely to happen to oneself. The speaker recounts a personal experience of a river near his home flooding. Human nature leads to shortsightedness, but perhaps the destruction stemming from the current tragedies will spark collective action and a reassessment of our future.
