Insurance is not yet expensive enough for taxpayers to fully grasp the threat posed by climate change. However, the lack of insurance coverage could trigger a domino effect that would shake the real estate market and, indirectly, financial markets. 

These were some of the key takeaways from a recent Covering Climate Now webinar, held under the theme Is Insurance the Next Big Climate Story? 

Issues related to insurance access and affordability—already seen in Louisiana after Hurricane Katrina in 2005 and in Florida following Hurricane Ian in 2023—appear to be spreading across several U.S. states. Experts and journalists participating in the webinar noted that wildfires in the Los Angeles metropolitan area are likely to make insurers even more cautious about climate-related risks. 

Reinsurance costs drive premium increases 

Leslie Kaufman, a journalist with Bloomberg News, emphasized the significant role reinsurance costs play in property insurance pricing. Major European reinsurers have observed an increase in extreme weather events across the United States. 

For severe convective storms (SCS), which have accounted for a substantial portion of insured losses in recent years, reinsurers are either refusing to provide coverage or are raising deductibles that must be absorbed by insurers, Kaufman explained. 

In July 2024, Kaufman reported comments from Swiss Re chairman Jacques de Vaucleroy, who stated that insurance premiums were not yet high enough to push populations to adopt climate adaptation measures. 

“My hope is when it starts to bite, we’ll see that the traditional responses aren’t working,” he said. “Then there will be way more money, way more interest” in mitigation and adaptation strategies, and even in an informed retreat from high-risk areas, Kaufman wrote. 

Adaptation challenges 

“We have built our world based on a climate that no longer exists.” These words were spoken by environmental journalist Jeff Goodell during a Jan. 10 interview with MSNBC host Alex Wagner, which was used to introduce the webinar. 

Goodell, author of The Heat Will Kill You First, cited the example of a homeowner unable to finance their mortgage due to a lack of insurance coverage. This scenario was already playing out in several California communities even before the wildfires currently raging in the Los Angeles area. 

If no insurer is willing to cover a property, its value collapses. When this scenario is multiplied by hundreds or thousands within a community, it impacts the entire real estate market, Goodell added. 

Dave Jones, a professor at the University of Berkeley and former California insurance commissioner (2011–2018), agreed with Goodell’s assessment. “There is broad consensus across financial regulators worldwide, including in this country (at least until the recent change in administration), that climate change poses systemic financial risks to the global financial system,” he said. 

When faced with high-risk areas, insurers typically respond in two ways: by raising premiums or by ceasing to underwrite new policies and renew existing ones. 

In the U.S., Jones noted that 35 states have public insurance programs to cover risks that private insurers are unwilling to take on. Unlike private companies, public insurers cannot go bankrupt; if funds run low, they increase contributions from private insurers or policyholders. 

A domino effect  

Jones pointed to increasing signs of rising mortgage defaults. The collapse of the housing bubble in major U.S. cities in 2007 and the subsequent 2008 subprime mortgage crisis revealed the vulnerability of financial markets when the real estate sector weakens. 

On Jan. 16, the London-based Financial Times cited concerns from a report published the same day by the Financial Stability Board, an international body of bank and insurance regulators. The report, Assessment of Climate-Related Vulnerabilities, stated that “climate-related vulnerabilities in the financial system, when triggered by climate shocks, could threaten financial stability through various transmission channels and amplification mechanisms.” 

Kaufman noted that exposure to risk under California’s public insurance program, the California FAIR Plan, has increased fivefold since 2018. According to her, this indicates that insurers anticipated a major disaster and gradually stopped renewing policies, forcing policyholders into the public insurance system. 

New York Times journalist Christopher Flavelle highlighted efforts by Rhode Island Democratic Senator Sheldon Whitehouse to document the issue of policy non-renewals. 

In a Dec. 19, 2024 article entitled How the Climate Crisis Became an Insurance Crisis, Flavelle reported on Senator Whitehouse’s comments during a Senate Budget Committee hearing he chaired: “The climate crisis that is coming our way us is not just about polar bears or green jobs... It actually is coming through your mail slot, in the form of insurance cancellations, insurance non-renewals, and dramatic increases in insurance costs.” 

Key findings 

In its December 2024 report entitled Next to Fall: The Climate-Driven Insurance Crisis Is Here—And Getting Worse, the U.S. Senate Budget Committee made three key findings:

  • Data confirms that it is climate change that is driving increasing non-renewal rates, as the counties that are most exposed to climate-related risks—such as wildfires and hurricanes—are the counties seeing the highest non-renewal rates.
  • Rising premiums and policy non-renewals are no longer confined to Florida, Louisiana, California, or Texas. Homeowners in many other states are facing insurability challenges, demonstrating that the full range of climate-related events (hurricanes, wildfires, severe convective storms, hail, extreme precipitation, and sea level rise) are all destabilizing insurance markets.
  • Non-renewal data obtained by the committee confirms a correlation between rising non-renewal rates and rising premiums. This underscores that climate change has become a major cost-of-living issue for families across the country.
The real estate market 

Los Angeles Times columnist Anita Chabria expressed concern about the impact of climate change and lack of insurance coverage on low-income families struggling to find housing in the Los Angeles metropolitan area.

In communities recovering from major disasters in California, she observed two trends. “First, people quickly find out they are underinsured or don’t have insurance. And they’re forced to sell to speculators or to wealthier people who can afford to rebuild. Two, the folks who can afford to do it are individuals who need to get their lives back on track, and so speed is their greatest focus. Politicians don’t want to get in the way of that. There is absolutely nothing popular about saying: ‘Hey, let’s take a step back. Let’s slow down. Let’s maybe do this differently’.”

Chabria stressed that insurers have the power to influence lawmakers to adopt safer reconstruction methods to mitigate risks. “They have a duty to do that rather than step back and not use their power to make change,” she said.

Jones noted that insurers are using increasingly sophisticated models to assess climate risk exposure. “In fact, better modeling just gives us more bad news about where the worst risks are landing and causes insurers to cherry pick even more risks and shove more people onto FAIR plans.”

The former California commissioner criticizes insurers for not taking into account, in their underwriting, the efforts made by policyholders or their communities who invest in order to mitigate their exposure to risk. According to him, lawmakers must review the rules to force insurers to consider these mitigation efforts in their underwriting process. 

In a Jan. 22, 2025 letter to The New York Times, Jones suggested that insurers recoup their losses by suing the primary contributors to climate change—oil and gas companies.