| In a major policy shift, California may allow insurance companies to factor in climate change risks when calculating premiums — the latest example of how a warming planet is reshaping the economy. The move comes as major insurers like State Farm stopped writing new property insurance policies in California and other states because of the financial toll from climate-fueled disasters, writes Anne C. Mulkern. Allowing those companies to use climate models when calculating premiums will help businesses and homeowners secure coverage. But don’t expect that coverage to be cheap. In Florida, for example, homeowners policies have risen in recent years from an average of $1,500 to $9,000 annually. The bigger picture: A leading credit-rating firm assigned the U.S. home insurance sector a “negative” outlook for the first time last month, as increasingly frequent and fierce wildfires, hurricanes and floods threaten steep future losses. Other disaster-prone states struggling to maintain their insurance markets include Colorado, Florida, Louisiana and Texas. “The business of writing property insurance has changed forever,” Stephen Young with Independent Insurance Agents and Brokers of California said at a recent event. Across most, if not all, sectors of the economy, the financial risks associated with climate change are becoming harder for corporations and governments to ignore. Just last month, the White House said it would consider using a climate damage metric to help it calculate fines and penalties for companies that violate environmental regulations. Until now, the government has only used the formula, known as the social cost of carbon, to weigh the costs and benefits of new rules. Golden state breakdown: In California, the most populous state in the nation, insurers have long been required to set premiums based on the last 20 years of losses. That helps keep rates affordable. But climate-fueled disasters continue to smash records, rendering historical data somewhat irrelevant. In the past decade, California experienced nine of the 10 most destructive wildfires in state history. That led the number of insurance cancellations or nonrenewals in the state to shoot up to 235,000 in 2019 from 165,000 a year earlier, Anne notes. And in recent years, seven of the top 12 insurance companies operating in the state either stopped writing new policies or restricted them because of damage from extreme weather. Even with expanded insurance options, living on the front lines of climate change is expensive. And the costs are only going to go up.
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