The insurance market is becoming increasingly unstable because of powerful natural disasters. The Southern California wildfires, which caused billions of dollars in damages in January, are just one of the recent extreme weather events concerning legal experts.

What’s happening?

As detailed by the ABA Journal, homeowners in Southern California are now dealing with insurance problems in the wake of the wildfires.

Prior to the destructive blazes, private insurers such as Farmers, Allstate, and State Farm had pulled out of the Golden State or had at least reduced their offerings. All in all, according to the Insurance Journal, fire risks pushed seven of 12 of the largest insurance companies to take such action. Attorneys expect more private insurers to follow suit.

“A big problem is not being able to find homeowners insurance with any reputable company,” said business litigator John Duffy, who moved to a different area with his wife even though their home survived the Palisades Fire and they haven’t had insurance difficulties like many of their neighbors.

“There’s no coverage for smoke and ash remediation,” Duffy explained. “And there are lots of toxins … so you can’t get back into your house.”

Why is this important?

In California, a growing number of homeowners are dependent on the FAIR Plan — launched by the state in the 1960s as a last-resort insurance solution. The ABA Journal reported this has left residents “grossly underinsured,” according to David Shaneyfelt, an attorney who represents policyholders filing claims against insurance companies.

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California isn’t the only state in the country facing insurance troubles because of extreme weather events supercharged by the warming climate.

For instance, from 2018 to 2023, Florida had four of the top 10 counties with the fastest-falling home insurance coverage rates, leaving residents to turn to the Sunshine State’s last-resort insurer, the Citizens Property Insurance Corp.

Miami attorney Francesco Palanda, a partner at Hinshaw & Culbertson, told the ABA Journal that he expects private insurers to continue to pull their coverage — or at least increase rates while adding coverage exclusions to their policies to maintain profitability in high-risk markets.

“It’s going to become increasingly difficult to find insurance,” Palanda said. “… What happens is, people are getting a lot less coverage for a lot more money.”

What’s being done about this?

Lucy Wang, deputy commissioner and special counsel at the California Department of Insurance, told the ABA Journal that regulatory reform could help bring insurers back to the Golden State, though policyholders would likely pay a premium for coverage. Palanda echoed that sentiment, saying, “Insurers will keep doing what they can to remain viable.”

While state-run insurance plans are at least providing some coverage and climate-resilient structures can mitigate risks associated with extreme weather, cooling down the planet’s temperatures could help bring balance back to the insurance market in the long term.

With the bulk of the excess heat-trapping gases in our atmosphere generated by dirty fuels, many governments and companies are investing in clean energy projects, such as solar and wind farms.

You can get involved by signing up for community solar, installing solar panels, or upgrading to energy-efficient appliances that pull less power from a grid that is heavily reliant on dirty fuels.

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