California is in the midst of a property insurance nightmare — a bleak harbinger for the swelling ranks of other increasingly disaster-prone states. In the wake of the deadly Los Angeles fires, California’s state-created insurer of last resort said it will run out of money to pay its claims, sending lawmakers and other officials on a desperate search to find the money for payouts, writes Camille von Kaenel. Their first stop: residents’ wallets. For the first time, California regulators have agreed to allow the state insurer to collect up to $1 billion from homeowners through a surcharge it will impose on other property insurance companies. Nearly all Californians could feel the bite. This kind of rate hike — which Floridians already know as a “hurricane tax” — marks a turning point for the nation’s most populous state. It means individual residents, including those far from the catastrophe zone, will directly pay for the cost of natural disasters supercharged by climate change. Expect other states to follow. Here’s why in a nutshell: Natural disasters such as hurricanes, fires and floods are becoming more frequent and intense as the planet warms. That means private insurance companies are being forced to pay out bigger claims more often — bankrupting some and driving others out of high-risk areas. Homeowners left in the lurch can find coverage with state insurers of last resort, or FAIR plans, offered in about 36 states. Those plans, which were often set up to cover a small number of outlier properties, are increasingly insuring hundreds of thousands of homes worth billions in states like Florida, Louisiana and North Carolina. In Florida, for example, the number of properties insured through the state-created entity jumped from 510,000 in 2020 to 1.2 million in 2023. Besieged by wildfires, Colorado is slated to launch its own FAIR plan this year. But so far, as evidenced most recently by California, it’s a tough model to sustain. States are working to enact policies that entice private insurers to stick around. But often that has translated into passing higher costs on to customers. A 2023 survey commissioned by the Personal Insurance Federation of California found that 10 out of the 36 states with insurers of last resort recoup costs from policyholders and not just insurance companies. There is, however, a burgeoning call to make fossil fuel companies driving climate change pay for the cost increases. The California legislature is considering a bill that would require the FAIR Plan to sue oil and natural gas companies to help recoup losses. A recent voter poll from the liberal-leaning Center for Climate Integrity and Data for Progress found considerable support for the idea. It seems doubtful, however, that such a plan would gain traction under the Trump administration, which has pledged to cut climate programs and boost the fossil fuel industry.
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