In January, at least 29 people were killed and more than 18,000 homes and buildings were burnt or destroyed by fires in the Los Angeles area — one of the worst disasters in California’s history.

Insurance offers one way to support people who have suffered catastrophic losses. But insurance companies are more cautious than ever to provide aid for damages associated with wildfires and other weather-related risks. Last year, insurers worldwide paid out more than US$140 billion in claims relating to natural catastrophes, the fifth consecutive year with losses exceeding $100 billion.

Most major natural disasters that cause substantial insurance claims, including storms, wildfires and flooding, are expected to worsen with climate change. But even for those perils for which recent spikes in payouts have been down to factors such as more properties possessions being insured, economic inflation and population growth, climate change still provides an unwelcome boost to risk, and therefore premiums.

Climate scientists are being drawn into the industry to model these risks. I’m one of them. After spending most of my career working in government and academia, in 2021, I joined Willis Towers Watson, a global insurance broker headquartered in London that serves as an intermediary between corporate clients, insurers and reinsurers.

Typically, insurers have used past claims to predict future losses from the same perils. So long as there had been no major unexpected disasters or big shifts in risk or exposure in a specific area, insurers could be confident that the premiums paid by the many would be enough to finance the claims of the few.

But in 1992, destruction from Hurricane Andrew in the Gulf of Mexico exposed the fragility of that approach by causing insured losses three times higher than expected by industry insiders in Florida alone. Insurers switched to sophisticated catastrophe models — tools that combine the physics of specific natural hazards with details about building construction and insurance information — to estimate possible financial losses. And in the past few years, as the imprint of global warming on natural hazards has become more obvious, the insurance industry has been recruiting climate and Earth scientists to reduce the likelihood of being taken by surprise in the future.

Today, insurers have more realistic views of their customers’ exposure to weather- and climate-related risks and the scale of potential claims. Within the limits set by government regulators, insurers decide how much risk they can tolerate across their portfolio, raise premiums for owners of more-exposed homes and purchase reinsurance to prepare for losses larger than they could normally afford.

Bankrupt insurers can’t pay claims. Policyholders therefore benefit from risks being estimated correctly so that losses can be paid by charged premiums. But insurers also use the latest catastrophe modelling and climate science to justify higher prices, which are fast becoming unaffordable. Too many people are forced to choose between paying more for the same insurance, accepting lesser coverage to keep premiums manageable or letting their insurance lapse.