The climate crisis is becoming a financial crisis.

This month, California’s largest insurance company, State Farm, announced it will stop selling homeowners insurance. This is not just in wildfire zones, but all over the state.

Tired of losing money, insurance companies are raising rates, cutting coverage or pulling out of some areas altogether, making it more expensive for people to live in their homes.

“Risk comes at a price,” said Roy Wright, a former Federal Emergency Management Agency insurance official who now heads the Insurance Institute for Business and Home Safety, a research group. “We’re seeing it right now.

In parts of eastern Kentucky that were ravaged by storms last summer, the price of flood insurance is set to quadruple. In Louisiana, a top insurance official says the market is in crisis and is offering millions of dollars in subsidies to try to attract insurers to the state.

And in much of Florida, homeowners are increasingly struggling to purchase hurricane coverage. Most of the big insurers have already pulled out of the state, sending homeowners to smaller private companies that are trying to stay in business — a possible glimpse into California’s future if more big insurers leave.

State Farm, which insures more homeowners in California than any other company, said yes stop accepting applications on most types of new policies in the state due to “rapidly growing catastrophe exposure.”

The company said that while it recognized the work of California officials to reduce wildfire losses, it had to stop writing the new policies “to improve the company’s financial strength.” A spokesman for the State Farm did not respond to a request for comment.

California insurance rates have jumped after wildfires turned out to be more destructive than anyone expected. A series of fires that broke out in 2017, many ignited by sparks from failing utility equipment, exploded in size with the effects of climate change. Some homeowners lost their insurance altogether because insurers refused to cover homes in vulnerable areas.

Michael Soller, a spokesman for the California Department of Insurance, said the agency is working to address the underlying factors that have disrupted the insurance industry across the country and around the world, including the biggest one: climate change.

He highlighted the department’s Safer From Wildfires initiative, a fire resiliency program, and noted that state lawmakers are also working to control the development in areas with the highest risk of burns.

But Tom Corringham, a research economist at the Scripps Institution of Oceanography at the University of California, San Diego who has studied the costs of natural disasters, said allowing people to live in homes that become uninsurable or prohibitively expensive to insure is unsustainable. .

He said politicians need to seriously consider buying properties that are most at risk or otherwise relocating residents from the most dangerous communities.

“If we let the market sort it out, we have insurers refusing to write new policies in certain areas,” said Dr. Corringham. “We’re not sure how that’s in anyone’s best interest other than the insurance companies.”

California’s woes resemble a slowed-down version of what Florida experienced after Hurricane Andrew devastated Miami in 1992. The losses bankrupted some insurance companies and caused most national carriers to pull out of the state.

In response, Florida he introduced a complex system: a marketplace based on small insurance companies, backed by the Citizens Property Insurance Corporation, a state-chartered corporation that would provide hurricane coverage to homeowners who could not find private insurance.

It mostly worked for a while. Then came Hurricane Irma.

The 2017 hurricane, which made landfall in the Florida Keys as a Category 4 storm before moving up the coast, did not cause much damage. But it was the first of a series of storms that culminated in Hurricane Ian last October that broke the pattern insurers had come to rely on: One bad year of claims, followed by several quiet years to build up their reserves.

Almost every year since Irma has been bad.

Private insurers began to struggle to pay their claims; some went bankrupt. Those that did survive raised their rates significantly.

More people have left the private marketplace for citizens, which recently became the state’s largest insurance provider, spokesman Michael Peltier said. However, Citizens will not cover homes with a replacement cost of more than $700,000, or $1 million in Miami-Dade County and the Florida Keys.

That leaves those homeowners with no choice but to get private coverage — and in some parts of the state, that coverage is getting harder to find, Mr. Peltier said.

Despite its problems, Florida has an important advantage: a steady stream of residents willing and able to pay the rising cost of living there, for now. In Louisiana, the rising cost of insurance for some communities has become a threat to their existence.

Like Florida after Andrew, Louisiana’s insurance market began to sag after insurers began leaving after Hurricane Katrina in 2005. Hurricane Laura in 2020, a series of storms pounded the state. Nine insurers failed; people started rushing into the state’s version of Florida’s Citizens Plan.

The state’s insurance market “is in crisis,” Louisiana Insurance Commissioner James J. Donelon said in an interview.

In December, Louisiana had to raise premiums for coverage provided by its Citizens plan by 63 percent, to an average of $4,700 a year. In March, it borrowed $500 million from the bond market to pay the claims of homeowners who were left behind when their private insurers failed, Mr. Donelon said. The state recently agreed to new subsidies for private insurance companies that essentially pay them to do business in the state.

Mr Donelon said he hoped the subsidies would stabilize the market. But Jesse Keenan, a professor at Tulane University in New Orleans and an expert on climate adaptation and finance, said the state’s insurance market will be difficult to reverse. According to him, the high cost of insurance has started to affect house prices.

In the past, it was possible for some communities—those where homes are passed down from generation to generation, without the need for a mortgage and without banks requiring insurance—to go without insurance altogether. But with climate change making storms more intense, that’s no longer an option.

“There just isn’t enough wealth in these low-income communities to continue to rebuild, storm after storm,” said Dr. Keenan.

Even as homeowners in coastal states face rising wind coverage costs, they’re being squeezed from another direction: flood insurance.

In 1968, Congress created the National Flood Insurance Program, which offered taxpayer-backed coverage to homeowners. As with the wildfires in California and hurricanes in Florida, the flood program arose out of what economists call a market failure: Private insurers wouldn’t provide flood coverage, leaving homeowners with no options.

The program achieved its main goal of making flood insurance available at a price homeowners can afford. But as the storms grew stronger, the program faced mounting losses.

In 2021, FEMA, which runs the program, began setting rates equal to the actual flood risk to face homeowners – an effort to better communicate the real danger facing various properties, as well as stem losses to the government.

These increases, which are phased in over the years, represent huge jumps in price in some cases. The current cost of flood insurance for single-family homes across the country is $888 per year, according to FEMA. Under the new risk-based pricing, that average price would be $1,808.

And by the time current policyholders actually have to pay premiums that reflect that full risk, the effects of climate change could increase them significantly.

“Properties located in high-risk areas should plan and expect to pay for that risk,” David Maurstad, head of the flood insurance program, said in a statement.

The best way policymakers can help keep insurance affordable is to reduce the risk people face, said Carolyn Kousky, associate vice president for economics and policy at the Environmental Defense Fund. For example, officials could introduce stricter building standards in vulnerable areas.

Government-mandated programs like the Flood Insurance Plan or Citizens in Florida and Louisiana were supposed to be insurance for the private market. But as climate shocks worsen, she said, “We’re now at a point where it’s starting to crack.”

He produced the sound Kate Winslett.

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