Insurance as Climate Omen

Terry Schwadron
4 min readMay 31

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Terry H. Schwadron

May 31, 2023

Even as Republicans in Congress — and more generally the Republican presidential candidates — continue to deny the need for systematic governmental response to climate change, here comes the business community offering up a reality slap in the face.

State Farm, California’s top homeowner insurer, announced this week it will no longer accept homeowner insurance applications in the state because of rising construction costs and the “rapidly growing catastrophe exposure” to extreme weather events like wildfires.”

Could Florida and its hurricanes of increasing intensity and damage or the expanding tornado-warning zone of the Midwest and South be far behind?

This did not feel an ordinary news item as it was being treated, but a harbinger of much broader developments that we ought to be cataloguing and addressing.

The announcement was a signal that climate damage is real, measurable, and already veering out of control for insurers and lots of other businesses and citizens who depend on a steady hand during an evolving crisis.

It also struck me as patently unfair for a single company collecting huge profits in California to insure against damages to simply insist that it remain entirely free from the very risks for which it sells its protection policies. It was mildly surprising not to hear an immediate response from Gov. Gavin Newsom towards keeping home sales from halting or plummeting.

Indeed, it would not be shocking to hear the governor’s office tell State Farm that if it wants to sell car insurance and other protections, the company will have to come up with some kind of homeowner policy continuation. Or that insurers in the state must pool resources, for example.

It takes State Farm some chutzpah to insist that it only maintain insurance for risks that fall within its profit zone. But real more broadly, the announcement should be a red, blinking warning that the era of catastrophe is gaining wider industry recognition.

It’s Getting Worse

Unless you are sticking your head in the scientific sand, multiple students show climate change is influencing the frequency and severity of extreme weather events like wildfires and hurricanes that now start at very dangerous and grow quickly into killers that wipe out whole towns in minutes.

How Republican leadership gets away with seeking to separate these trends from climate change is a mystery. But we all understand that the GOP ideal of a federal government that exists almost solely for ever-growing national defense has no room to consider how it should address policymaking and investments to lower carbon emissions or energy sources other than fossil fuels.

State Farm is not alone in its assessments. The American International Group announced last year it was pulling policies in the state amid wildfire risk concerns. The state responded with a one-year moratorium to prevent homeowner insurance cancellations and non-renewals in some fire-affected counties. In Florida, some insurance companies have reported bankruptcy and homeowner insurance price rates are spiraling.

State Farm said, “We take seriously our responsibility to manage risk. We recognize the Governor’s administration, legislators, and the California Department of Insurance (CDI) for their wildfire loss mitigation efforts. We pledge to work constructively with the CDI and policymakers to help build market capacity in California. However, it’s necessary to take these actions now to improve the company’s financial strength.”

State Fam vowed that current policies were unaffected. But the announcement will cut the number of insurers, raise rates, add to home costs, depress jobs in the construction and re-building industries — and create a huge prospect for human and property disaster.

In California, Cal Fire reports 7,490 wildfires razed 362,455 acres, killing nine people, and destroying or damaging 876 structures.

Our Response: Look Away

Government’s specific role in all this is to defend consumers, no doubt, but it listens carefully to what businesses say.

A big part of the push by Congressional Republicans through this debt ceiling-federal spending debate has centered on anger over continuing plans from the Biden administration to invest in climate-oriented projects. They push continued dependence on oil and fossil fuels in the short-term over concern about where we are headed.

To cushion corporate profits, many big businesses have continued to raise prices and say they intend to keep doing so, according to a survey by The New York Times. Prices for consumer goods are rising even as the cost of oil, transportation, food ingredients and other raw materials have fallen in recent months, the paper says.

Umair Haque, an economic and frequent blogger, says baldly that California’s becoming uninsurable because of climate change. He calls the State Farm decision a gateway into unrecognized “extinction economy,” a time in which the various failures to address climate change are spurring inflation, out-of-control damages, rising debts and incalculable loss of individual control over the cost of living.

The abandonment of insurance for homeowners leaves individuals whose largest financial asset is their home unable to sell or move, in effect stranded in a sea of rising prices and the inability or lack of will of governments to want to intervene. Climate change — buoyed by pandemics — is starting to affect water, crops, transportation, and supply lines on a much more permanent basis than we had believed.

Haque’s message is that the effects already are here, and that we are witnessing their acceleration — even as governments want to look away for domestic political reasons.

He warns that the State Farm announcement “means that climate change is already enough of a risk that our systems — in this case, our financial systems, of which insurance is a part — can’t cope with risk this big. Because this is civilizational risk.”

Wo ought to be paying attention.

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www.terryschwadron.wordpress.com

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Terry Schwadron

Journalist, musician, community volunteer