As temperatures rise and the climate changes, something more coveted than gold is beginning to emerge in California (USA): good home insurance. With a reasonable premium and coverage. The insurance industry in the so-called Golden State is changing so much and so fast that there are already people talking about a full-fledged “crisis”. And this makes sense. After several summers of heat waves and voracious wildfires, the region is in dire straits. frightened The number of companies that have concluded that it is not worth operating there.

The result is that insurers have withdrawn, thousands of policies have been doomed to not be renewed, and many more families have been forced to apply for the FAIR Plan, a program designed as a last resort for homeowners in high-risk areas. All this is accompanied by an increase in home insurance costs.

The most interesting thing is not the California phenomenon and its severe insurance crisis itself, but what it tells us about climate change.

Goodbye, California. Insurance companies that have lost interest in the California market also say this. in march news week He was referring to Texas-based American National, which decided to reduce its U.S. footprint and told state officials it would stop offering policies to California homeowners within a few months; However, this is not an isolated case.

A similar decision, with different nuances, was made by Tokio Marine America Insurance and Trans Pacific Insurance, both of which are affiliated with the same parent company, Japan’s Tokio Marine Holdings. Its intention is to withdraw from the general home and liability insurance market in California.

Added State Farm General Insurance Company, Allstate, Farmers or The Hatford Insurance to the list. In March, the former issued a memo in which it announced its intention not to renew 30,000 insurance policies on homeowners, rentals and other assets and to withdraw its offer of coverage for commercial apartments; This meant thousands of other policies expired. .

Fact in numbers. State Farm data gives an idea of ​​the magnitude of the crisis. One way or another, insurance companies that have decided to fold their sails in California are offering coverage to thousands of homeowners by pausing new policy contracts or setting limits. Additionally, according to calculations news week State Farm, Allstate and Farmers alone cover just over 40% of the state home insurance market. The numbers are absolutely striking.

In December, American National had approximately 36,500 California homeowners policies worth approximately $37.9 million in premiums. And two companies affiliated with Tokio Marine cover about 12,500 home policies in the state with 11.3 million in premiums, not counting thousands of other civil liability policies. Regarding State Farm General, los angeles times It mentions that 72,000 policies statewide have not been renewed.

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Go to last resort. With insurers backing out, many families in California have no choice but to look for alternatives to insuring their homes. And this has happened, in many cases, by requesting a policy under the FAIR Plan, which is considered a “program of last resort” designed for families in high-risk areas of California who have difficulty purchasing private fire protection services on the market.

“Overloaded and tense”. A few months ago, those in charge of FAIR claimed that they were receiving hundreds of policy requests a day. In fact, in October, there were nearly 350,000 California homeowners covered by the network of last resort.

“Recent turbulence in the California home insurance market has left the FAIR Plan overstretched, strained, and increasingly expensive. As of January, more than 350,000 households were estimated to be in the plan (consistently growing), compared to just under 275,000 in two years.” first,” explains financial company Bankrate. “But for Californians whose homes are in high-risk fire zones, this may be the only way to financially protect their homes.”

Rising costs. There is another conclusion. And this is the increase in costs associated with insuring a home. This was recently reflected in an article from Carrier Management, which in turn echoes a report from Redfin. According to their data, 70.3% of homeowners in Florida and 51% of homeowners in California report that they or their area have been affected by increases in home insurance costs or coverage changes. This rate is 44.6% across the country.

The same study concludes that 11.9% of those looking to move in Florida cite the rising cost of insurance as one of their motivations, compared to the national average of 6.2%. 13.1% of those considering packing their bags in California are worried about natural disasters or climate risks.

But… What is the reason? Million dollar question. State Farm General assured in a statement in March that its decision not to renew thousands of policies in California was based on “a careful analysis of its financial health,” which is affected by factors such as “inflation, exposure to catastrophes, reinsurance costs, and insurance costs.” limitations of working with decades-old regulations. Companies cannot freely increase home insurance premiums. A 1988 law states that these people must first get approval from a commissioner.

A similar idea was conveyed by the American National Company. San Francisco ChronicleHe explained that the reason for his step back was “significant and persistent profitability issues in the home insurance market.” In particular, he points to “inflationary pressures”, “an increase in the frequency of claims” and “competitive market conditions”.

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Heat waves and fires. Although companies point to the inflationary scenario affecting, for example, rebuilding costs, the insurance crisis in California coincides with another important phenomenon that directly affects them and has been observed for some time: heat waves and wildfires. It affected hundreds of homes.

In 2018, more than 140 buildings and tens of thousands of hectares of land were damaged in a single fire. Another, named Dixie, in 2021, devastated tens of thousands of hectares and more than 600 homes in mid-August. There were also serious fires in 2022, and last year, 7,100 forest fires were recorded, burning approximately 131,500 hectares. The State of California’s tally also shows that the fire affected 71 structures, 58 of which were destroyed.

“Frequent threats”. Although fires are not new in California, there are studies that clearly show a relationship between climate change and wildfires. This is shown, for example, in a study published in 2023 by NOAA and NIDIS and recognized by the Environmental Protection Agency: “Wildfires, a common and long-standing threat to California, are expected to increase in intensity and frequency over time as the climate changes”.

Other reports suggest that global warming is also affecting the behavior of fires, making them more explosive. The state is also no stranger to heavy rains and flooding. “California has a long history of extreme fires, floods, droughts and heat waves. But as carbon pollution from fossil fuels warms our climate, many of these extreme climate events are becoming more frequent, more severe and pose a greater health risk. ” From NRDC.

A well-worked relationship. The impact of extreme weather events on the insurance industry is not new and is well researched. “As climate change causes more natural disasters, the insurance industry is increasing rates, narrowing coverage and exiting some markets,” the report, analyzed as an example by the World Economic Forum, said. The statement was included. A recent analysis on the subject actually points to the California example.

“Climate change poses a mystery to the industry,” explains risk expert Daniel Murphy in an article published on the organization’s official website. And in an exclusive analysis of State Farm and All State’s retreat in the Golden State, he says: “The company’s losses in the wildfire insurance market speak for themselves: During the 2017-2018 fire season, the industry insurance company lost the equivalent of two decades of profits.” .

There are studies that give a rough idea about the huge costs caused by natural disasters on a global scale. It is estimated that this figure will reach 329 billion dollars in 2021 alone. The data may seem distant, but Spain is no stranger. Not at all. There are already insurance companies in the country that have started to add clauses to their policies that exempt them from covering damages caused by meteorological events, which until recently were believed to be abnormal and, above all, unpredictable. Problem: There aren’t many anymore.

Image | Matthew Keys (Flickr)

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