How Climate Change Could Cause a Home Insurance Meltdown

Big wildfires had started burning more often in California, creeping closer to Beth Pratt’s home near Yosemite National Park. So Pratt did what homeowners in fire-prone areas are supposed to do: She added a metal roof, traded wood decking for laminate, installed a water tank and a fire hose, and cleared vegetation near her house. Pratt says she emptied her savings to make her “home for life” fire resistant.

But it didn’t matter. Earlier this month, Pratt got a letter from Allstate, her home insurer of 31 years, saying her coverage was being dropped because of the threat from wildfires. “I get companies need to make money. I have no problem with that. Increase my rate,” Pratt says. “But to just drop people — you know, it’s scary. It leaves us feeling extremely vulnerable.”

Beth Pratt stands outside her home near Yosemite National Park. Pratt added a metal roof, traded wood decking for laminate, installed a water tank and a fire hose, and cleared vegetation near the house to make it fire resistant. Despite this, her insurance carrier dropped her because of wildfire risk.
Beth Pratt


Pratt, like hundreds of thousands of other California homeowners, is now facing the state’s mounting climate concerns with a weakened safety net. Several large insurers, notably Allstate and State Farm, have reduced or ceased sales of new policies in California during the last two years in order to avoid paying billions in wildfire damages. Homeowners like Pratt are learning that their long-term insurers have decided not to renew their policies.

California is not alone in this regard. Insurance firms in states such as Colorado, Louisiana, and Florida are cutting back on business to protect themselves from escalating losses caused by climate change. Earlier this month, AAA’s insurance arm announced that it would not renew some “higher exposure” home insurance policies in Florida, and Farmers Insurance announced that it will cease offering new home insurance policies in the state and will not renew thousands of existing ones, owing to rising hurricane losses.

Millions of homeowners around the country are being forced to choose alternative forms of coverage, which often come at a greater cost and with less coverage.

People who are unable to obtain insurance are unable to obtain mortgages. In addition, families who do not have appropriate home insurance frequently struggle following a calamity. Some are forced to relocate because they cannot afford to fix their homes, or they may suffer long-term financial consequences.

Several factors have combined to make adequate, reasonably priced house insurance more difficult to obtain. State agencies control the insurance business, and they are working to keep rates low for citizens even when weather patterns become more intense as a result of global warming. As a result, insurers claim they can’t raise premiums enough to cover damage in the most dangerous areas.

Meanwhile, the cost of calamities continues to rise. People are still moving to hurricane-prone coastal locations and rural, forested areas around the country that are prone to wildfires. When houses are demolished, inflation raises the cost of rebuilding. Meanwhile, the rising temperatures that are causing disasters are mostly caused by the consumption of fossil fuels, which insurance companies continue to underwrite and invest in.

The United States is “marching steadily towards an uninsurable future,” according to Dave Jones, a former insurance commissioner and law professor at the University of California, Berkeley.

Allstate wouldn’t comment on Pratt’s case.

The reduction in home insurance alternatives comes at a time when most American families have little in savings and many are unable to obtain a loan to rebuild a damaged or destroyed home. As a result, when consumers are unable to obtain house insurance or have inadequate coverage, the repercussions can be severe.

“That impacts real estate, it impacts construction, it impacts lending. It’s just ingrained with everything,” says David Marlett, managing director of the Brantley Risk & Insurance Center at Appalachian State University. “Just as a human being, if you want to be able to stay where you live or where your job is or where your kids go to school, you want to be able to rebuild your house, you have to have a solvent insurance company that provides good coverage so that you can rebuild.”

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