Recent reports by the Senate Budget Committee and the Treasury found that climate change is already upending the US’s home insurance industry.
Megan Hall: Welcome to Possibly, where we take on huge problems, like the future of our planet, and break them down into small questions with unexpected answers. I’m Megan Hall.
You might think climate change just affects the weather or polar bears. But that’s not the case. It also creeps into our economy. For example— home insurance.
Juliana Merullo and Nat Hardy from our Possibly team are here to explain.
Juliana Merullo: Hiya Megan!
Nat Hardy: Thanks for having us!
Megan Hall: So, how does climate change affect home insurance?
Juliana Merullo: Well, let’s think about how insurance is supposed to work. If you own a home, you pay your home insurance each month.
Nat Hardy: Then, if something like a hurricane or hail storm or even a wildfire causes damage to your home, the insurance company gives you money to make repairs or rebuild.
Juliana Merullo: And the reason this works is that all the other people who paid their monthly insurance bills, and didn’t need to repair their homes, are essentially covering your repairs.
Nat Hardy: The insurance basically spreads out the risk. You’re protected in case something happens to your home. And the insurance company can still make a profit.
Megan Hall: So, climate change is messing with that formula?
Juliana Merullo: Exactly. To find out how, we talked to Dave Jones. He’s the director of the Climate Risk Initiative at the UC Berkeley School of Law, and used to serve as California’s Insurance Commissioner.
Nat Hardy: He says that extreme weather caused by climate change is creating a lot of havoc.
Dave Jones: These things are killing more of us, injuring more of us, but also causing more physical damage, which is causing insurance companies to pay out more money. Insurance companies respond in two ways: they raise the price and they stop writing insurance.
Juliana Merullo: Some insurance companies and politicians say that these big changes aren’t just because of climate change. But when the Senate Budget Committee and the Treasury published separate reports looking into the issue….
Dave Jones: Both those reports concluded that climate change is a major driver of both insurance rate increases as well as the declining to write new or renew insurance.
Nat Hardy: Experts worry that this could have all sorts of implications. It could make it harder to get a mortgage, and it could destabilize the whole housing market.
Megan Hall: But this is just affecting a few states that get big hurricanes or wildfires, right?
Juliana Merullo: Actually, no. More and more states are feeling the impact of climate change.
Nat Hardy: In 2013, insurance companies only lost money in 8 states. But just ten years later in 2023, they had losses in 18 states.
Megan Hall: Is that causing companies to raise rates and stop offering coverage?
Nat Hardy: It is, Now, State Farm won’t offer new policies in California, and it’s even refusing to renew some existing policies.
Megan Hall: What do you do if an insurance company won’t cover you?
Nat Hardy: A lot of homeowners turn to state run insurance programs. Most states have one, and they’re designed to offer insurance for homes that private insurance companies say are too risky to insure.
Juliana Merullo: But the more homes private insurers refuse to cover, the more people are turning to these state-run programs.
Nat Hardy: And because these are the riskiest properties, there’s a greater chance disaster will affect them, and the insurance program will have to pay homeowners for their losses.
Megan Hall: What happens when these state-based programs don’t have enough money to cover all the claims?
Nat Hardy: Then, private insurance companies in the state have to chip in.
Juliana Merullo: We’re seeing that happen right now in the aftermath of the LA wildfires. California’s state market, called the FAIR Plan, just requested $1 billion from private insurers to help cover all of the claims from the wildfires.
Nat Hardy: But because of reforms that California made in 2024, insurance companies are only responsible for half of that. The other half has to be paid by their policyholders in the state.
Dave Jones: So that’s going to be a big wake-up call for Californians, because not only are they going to see more rate increases for their own insurance they’re going to get a bill for the FAIR plan to help bail it out.
Megan Hall: Wow! So, everyone is really feeling the impact of this crisis. But why did California make those reforms?
Juliana Merullo: That’s a topic for a whole ‘nother episode!
Megan Hall: Sounds good! Thanks, Juliana and Nat. That’s it for today. You can find more information, or ask a question about the way your choices affect our planet, at askpossibly.org. You can also subscribe to Possibly wherever you get your podcasts or follow us on Instagram, Facebook, LinkedIn, X, or Bluesky at “askpossibly”
Possibly is a co-production of Brown University’s Institute for Environment and Society, Brown’s Climate Solutions Initiative, and the Public’s Radio.
The post How is climate change affecting home insurance? appeared first on TPR: The Public’s Radio.