California is one major wildfire away from an insurance meltdown — and residents could be forced to foot the multibillion-dollar bill. That’s according to Victoria Roach, the president of California’s state-chartered insurer of last resort, which — like many state insurers in disaster-prone regions — is grappling with the effects of climate change on the private insurance industry, writes Thomas Frank. Across the country, property insurers are retreating from vulnerable areas that have become too risky to insure. Hurricanes in Louisiana and coastal Texas chased away a number of insurance companies between 2020 and 2022, while Florida’s insurance market never recovered from 1992’s Hurricane Andrew. And State Farm, California’s largest property insurer, made national news last year when it said it would no longer write new policies in the state. That has forced hundreds of thousands of people to buy coverage from state insurers of last resort, many of which are not financially prepared for the influx of new customers. “As those numbers climb, our financial stability becomes more in question,” Roach of California FAIR Plan said. If the state were to experience a wildfire as damaging as the 2018 Camp Fire, which killed 85 people and engulfed 18,000 buildings, the state-chartered insurance company could face $6 billion in claims, Roach said. And once the insurer drains its coffers, it would have to recoup as much as $3.3 billion from policyholders. “It’s a ticking time bomb,” said Michael D’Arelli of the American Agents Alliance, an association for insurance agents. Part of the problem is that many state-chartered insurers are unwilling or unable to set rates that accurately account for climate risks. In California, for example, state law restricts insurance premium cost increases. Roach said FAIR needed to raise premiums by 70 percent in 2021 — but only got approval for a 16 percent increase. A new proposal would ease a restriction that bars insurers from using projections of future damage and climate conditions to set premiums. But whether policyholders are charged more upfront or slapped with a surcharge after a disaster, one thing is clear: It is becoming increasingly expensive to live in areas vulnerable to climate change.
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