DURANGO, Colorado — In today’s world of more frequent and severe natural disasters, the business risks of selling home insurance policies are rising sharply. The devastating fires in Los Angeles are just the latest in a long string of extreme events fueled by climate change over the last 30 years.

The risk equations no longer pencil out. Increasing insurance damage claims lead to higher premiums. Hurricanes and wildfires have especially large financial impacts to insurance companies who face record-breaking payouts. These costs are passed on to policyholders, which undermines personal finances, housing demand and home values in high-risk areas. Conditions are ripe for an insurance crisis.

From 2017 to 2022, homeowners’ insurance premiums rose 40% faster than the inflation rate, indicating a significant real-term cost increase for policyholders. If you fall into this category, you might consider yourself one of the lucky ones. Read on.

Insurance companies are reducing their coverage, sometimes writing new policies that exclude specific risks such as flooding or wind damage, especially in high-risk areas.  In some cases, insurance companies are withdrawing entirely from some markets, as seen in California, Texas, and Florida. Using sophisticated climate modeling, companies are reassessing their exposure, and rightly so.

As insurance premiums rise, some people forgo insurance altogether, increasing their financial vulnerability. But what if you have a mortgage? You are required to carry homeowners’ insurance. What if you want to sell your property, but the potential buyer can’t get mortgage-approved insurance because of your high-risk zone? What happens to the tax revenue that governments rely on for police and schools as home values in these areas plummet?

There is increasing political pressure on state and federal governments to intervene, straining public resources. Is it an efficient use of taxpayer dollars to subsidize risky areas to keep certain insurance premiums affordable? Would subsidized insurance in high-risk areas burden households in low-risk areas and encourage more people to locate their residence in harm’s way, areas that private insurers won’t touch?

A recent Brookings report concludes “the inconvenient truth is that property insurance premiums will need to increase in high hazard areas to reflect climate risk exposure…. to reflect the real and rising costs of climate change.”

Fossil fuel companies are guilty of passing the costs caused by their activities onto society. This is referred to as externalized costs, meaning they don’t pay the economic, social, or environmental damage that is rooted in the product they sell. Burning fossil fuel overloads our atmosphere with greenhouse gas emissions that trap heat, increasing global temperatures. The more fuel we burn, the more heat gets trapped, and the more erratic our weather becomes.

The fossil fuel industry has historically funded misinformation campaigns and lobbying efforts to delay climate policies. These actions slow the adoption of renewable energy and the implementation of climate adaptation measures, increasing long-term societal costs.

The economic consequences are unavoidable. Human-caused climate change is increasingly costly and catastrophic. Governments, businesses, and individuals are paying tax-funded disaster relief programs, infrastructure repairs, and higher insurance premiums for property.

We need to hold carbon polluters responsible. Some states are passing “Climate Superfund” laws, requiring energy companies to help pay for the costs of dealing with extreme weather events and climate adaptation projects. Internalizing the costs and damage of emissions to the fossil fuel industry would create incentives to adopt cleaner practices and accelerate the global transition to sustainable energy systems.

The burning in Los Angeles is the first U.S. mega-catastrophe of 2025. We need to get serious about reducing our carbon emissions, or climate-exacerbated weather events will continue to intensify.

Susan Atkinson is a resident of Colorado who supports bipartisan solutions to climate change.

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