What’s the context?
Fire in Paradise: Low-income US home owners face soaring insurance premiums in ‘managed retreat’ from climate change
Wildfires fuelled by climate change rip regularly through the wooded hills around Paradise, flattening its modest Californian housing and forcing a tough, new choice on residents.
Should they stay or should they go?
With the cost of rebuild on the rise, insurance premiums soaring and no certainty about the future value of any property in a risk zone, the choice is not easy.
And that same dilemma is playing out nationwide, as mounting climate risks – from flood to fire to coastal erosion – force a managed retreat on many low-income Americans in high-risk areas.
“Low-income and communities of colour are more climate-vulnerable following decades of disinvestment,” said Monica Palmeira, a climate finance strategist with the Greenlining Institute nonprofit.
“As financial institutions start accounting for climate risk, we want to make sure there’s no collateral damage.”
Millions of Americans have become reluctant members of what is a fast-growing club of climate refugees, with floods and fires driving ever more evacuations.
The poorest on the climate frontline face a double whammy.
Rendered first homeless, many then struggle to meet the cost of rebuilding a home from scratch, yet see few affordable options to start afresh elsewhere, either.
“Insurance is impacting everything,” said Seana O’Shaughnessy, president and CEO of Community Housing Improvement Program (CHIP), an affordable-housing developer.
CHIP is working to rebuild much-needed housing in Paradise despite worries about the maths.
“Insurance may force the issue where only people who have a certain level of income can live in communities like this,” said O’Shaughnessy, noting that a home policy in Paradise which had cost a few thousand dollars may now be upwards of $20,000.
Fires have destroyed more than 16,000 units of low-income housing in the Paradise area of northern California since 2018, a particularly bad wildfire year, she said.
The Sierra Nevada foothills were set ablaze in a 2018 fire that killed at least 85 and destroyed 18,000 structures to become the state’s deadliest, according to official statistics.
It has been followed by other major blazes, making reconstruction in the area a constant.
But while many displaced families want to return or remain, home insurance – vital to any rebuild – has become extraordinarily expensive or simply unavailable, complicating efforts to rebuild, she added.
State Farm, the country’s largest home insurer as of 2022, said last year that it would not accept new home owners in California, in part over the rising wildfire risk.
It is a pattern replicated now across the country, as policymakers, financial institutions and the private sector wise up to the risks posed by climate-driven disasters – and respond in ways that threaten the poor and marginalised most.
“We’re starting to see the early warning signs” of institutions refusing to lend or offer policies in some areas, Palmeira said.
A report from the Greenlining Institute last year tracked the trend – known as “bluelining” – in the credit, mortgage and insurance markets, including in the State Farm decision in California.
The problem, Palmeira said, is this means that financiers, rather than residents, get to decide which families live where.
“There’s a place for (planned) relocation, but we don’t think financial institutions need to make that decision on their own,” Palmeira said.
“We want to refrain from allowing the market to decide when a community shouldn’t live in a certain area.”
Insurance calls the shots
Insurance premiums have spiked, in part because costly natural disasters occur more often and as more people live in risky areas, said Karen Collins, a vice president with the trade group American Property Casualty Insurance Association.
“With these impacts showing no signs of easing, the insurance industry has placed a substantial focus on mitigating future loss,” she said by email.
But it wasn’t just down to industry to act, she said, urging people living in threat zones to plan better, build better and clear out their old brush to slow the spread of future blazes.
Already Americans are on the move in the face of climate change, and the numbers are only set to rise.
More than 3.2 million people left U.S. neighbourhoods at risk of flooding in the first two decades of this century, creating what the First Street Foundation non-profit research group last month dubbed “climate abandonment areas”.
In the next three decades, those first movers are expected to be joined by another 7.5 million U.S. climate refugees.
To help guide would-be buyers away from the areas most under threat, climate risk is starting to be priced into valuations, said Patrick Welch of the Lincoln Institute of Land Policy.
Last year, for instance, New York, New Jersey and the Carolinas bolstered requirements around disclosing flood risks when selling a house, to make buyers more aware of any threat.
Yet such policies bring new concerns, too – not least the potential for falling home prices, hitting those who can least afford any downturn in their assets’ value.
“The riskiest places in the U.S. broadly are where historically marginalised and low-income minority populations live. So devaluing their properties could wipe out generational wealth for these families,” Welch said.
Still, Welch said some local authorities are finding ways, often through zoning powers, to both encourage families at risk to leave while also addressing broader equity considerations.
For instance, Norfolk, Virginia, has a plan that would let owners of undeveloped property at risk of flooding sell their building rights to developers in other neighbourhoods.
The plan is to build more in safer areas and cut development in risky spots, Welch said, “but with a mechanism by which you’re not completely wiping out someone’s property value.”
Buyouts for all?
While local authorities are playing an increasing role in managing retreat from risk areas, the largest buyout programme is overseen by the Federal Emergency Management Agency.
It has for decades bought properties at particular risk, paying homeowners at market value.
Buyouts have long been controversial among policymakers, but that is changing as the risks grow, said Tim Robustelli, a senior analyst at the New America thinktank.
Now the problem is ensuring that buyout funds – which are limited – are used fairly and help the most vulnerable, he said.
“Buyout programs have gone to wealthier and whiter counties,” he said, noting that predominantly white communities have swallowed up 85% of FEMA’s buyout budget.
“Whiter and wealthier counties have the resources to apply for these kinds of programmes – it’s a complicated process.”
New research suggests federal buyout programmes may be fuelling racial segregation, said Rice University sociologist James R. Elliott, whose findings were published last year.
Often buyouts can amount to “a subsidy for people to move from at-risk housing in majority-white neighbourhoods … to other majority-white neighbourhoods nearby,” he said.
Non-white residents appear to be more resistant to buyouts, in part due to a lack of other affordable options nearby.
The key to encouraging managed retreat is to build safer and equally affordable housing nearby, he said.
FEMA last year started requiring that states consider equity and the impacts of climate change when implementing flood buyouts and other hazard mitigation programs, an agency spokesperson said.
While FEMA provides the funding, states make the decision on offering buyouts and which properties are eligible, the spokesperson said.
Robustelli said the government is experimenting with how to ensure buyouts are more fair and make best use of limited funds.
A federal pilot project, for instance, is giving three Native American tribes in Alaska and Washington state $25 million each to relocate.
The process is unique in that the funding is proactive, offered before a disaster even hits, but also because it is led by the communities, said Robustelli, who co-authored a report on the issue in October.
And in that, he said, are lessons for all the nation.
“What we saw being implemented there – listening sessions, being really deliberate about outreach … taking the ideas of the most marginalised into account – that’s something worth emulating across the United States.”
(Reporting by Carey L. Biron; Editing by Lyndsay Griffiths.)
Alice J. Roden started working for Trending Insurance News at the end of 2021. Alice grew up in Salt Lake City, UT. A writer with a vast insurance industry background Alice has help with several of the biggest insurance companies. Before joining Trending Insurance News, Alice briefly worked as a freelance journalist for several radio stations. She covers home, renters and other property insurance stories.