State Farm’s California Evacuation: What It Means for Climate Adaptation and Communities
Remnants of the community of Coffey Park, California, after a wildfire in October 2017.Photo: California National Guard
state farm recently announced It will no longer offer new insurance policies to California homeowners. The company made it clear that continuing to cover properties in the state no longer made financial sense due to the increased risk of wildfires, among other challenges.
State Farm is not alone. California isn’t the only state in the red zone, either.A few days ago, both Allstate and AIG announced similar moves last yearinsurance company is more and more vigilant Do business in a hurricane-hit southeastern state.As climate change amplifies the risk and impact of disasters such as wildfires, hurricanes and floods, the insurance industry is forced to change strategy.
Could decisions like State Farm’s help climate adaptation and keep people out of danger? What does such a decision mean for vulnerable groups? Below, two climate school experts weigh in on these questions and more. Lisa Dell Is a lecturer in the Climate Institute and co-director of the Sustainable Development Undergraduate Program. alex deschapin He is a geographer at the Center for International Earth Science Information Network (CIESIN), Columbia Institute for Climatology.
Both scholars will delve into the challenges of keeping people and communities safe from climate-related risks at an upcoming conference Manage retreat sessionshosted by the Columbia Climate Institute, June 20-23.
How surprising is this move by State Farm?
Lisa Dell: In fact, many, including me, expect this to happen sooner, as the financial risks of wildfires fueled by climate change appear to be daunting for insurers. But as the years wore on and the insurance industry remained in the state — it should be noted that California’s policy banning insurers from ditching customers after a costly fire garnered support — the risk calculations seemed less obvious than they were looking at. From the viewer’s point of view. Now, we can finally point to this decision and observe that insurance companies often do act as real-time brokers of accurate risk. …If State Farm doesn’t think California’s future offers them a path to profitability, then here’s a financial reality check.
Why is this happening now?
Lisa Dell: Climate change is making wildfires more intense, more common, larger and more expensive. Perhaps insurers are seeing the omens and are making long-term underwriting decisions based on data-driven predictions of future risk.
How do you think this will change the behavior of homeowners and/or developers in California?
Alex Descherbinen: There will probably always be companies willing to insure California homeowners…for a fee. But if multiple insurers pull out, it could trigger some people to move out of the area.
Lisa Dell: I think this decision has complex consequences. By highlighting the risks of wildfires, the insurance industry effectively waved a red flag to the state, and prospective homeowners are sure to take notice. Even more strikingly, developers will scale back plans to build in areas known to be at high risk of wildfires in anticipation of less demand from consumers. This movement away from high-risk areas and toward safer terrain could be a game-changer. However, we should not celebrate. The existing housing stock is huge, and millions of people still live in at-risk areas.
How will this move affect disadvantaged communities?
Lisa Dell: If more insurers follow State Farm’s lead, it could become difficult or impossible for existing homeowners to remain insured, creating a critical situation for residents. If State Farm’s decision leads to an overall increase in insurance rates, environmental justice concerns arise, making mountain living only accessible to the wealthy and suddenly exposing many longtime residents to Mother Nature with no safety net.
What else can be done to address threats like wildfires?
Lisa Dell: For people living in wildfire-prone areas, there are many other risk reduction strategies. Most importantly, private landowners should adopt strategies that change the layout of their properties and the building materials used, both of which have been shown to reduce risk. Federal land management agencies should address wildfire risk on public lands, which account for nearly half (46 percent) of California’s land area. State and local policymakers should invest in technical and financial support for homeowners to help them empower themselves. Wildfires are inevitable, and for ecosystems that depend on fire, they are essential. Efforts to reduce the risk of these fires were a task that predated the issue of insurance coverage, and these strategies are as relevant today as they were last week.
Is this relevant to anything you’ll be discussing at the Managed Retreat meeting?
Alex Descherbinen: Yes, we’ll have some meetings focused on California issues and fire risks.
Lisa Dell: i have covered Wildfires in the American West At the Managed Retreat conference in 2019 and 2021, it even talked about The role of insurance In that case. I’ve always been interested in how policy changes change incentives for individuals. As insurers leave California, will homeowners choose to live in other, equally dangerous locations in neighboring states, creating an unwelcome race to the bottom among states to attract new residents? Or will they see the insurer’s departure as an indicator of high risk, making them reconsider their desire to live in the mountains?
What other fields might love reporting next?
Alex Descherbinen: I can say the same thing has happened to the insurance industry in Florida. Interest rates have been rising all the way, and there are fewer and fewer insurance companies in the market. The same factors are likely present, except for different climate risks.
Lisa Dell: Flood zones along the southeastern U.S. coast are only insured today thanks to the bankrupt National Flood Insurance Program, which requires openly underwritten insurance to all homeowners who have mapped flood zones. Today, the program is in the red and homeowners have been receiving conflicting messages about the risks they face. They may be told that flooding is possible, but understandably feel at ease if they can get affordable home insurance. Removing coverage will ring alarm bells for coastal residents, just as State Farm’s decision did for mountain dwellers.
Removal of insurance may provide a clear signal of escalating risk—a cue that may motivate landowners to make appropriate lifestyle transition choices to reduce their risk—but it also leaves low-income households unprotected. There are no easy solutions here, and I’m wary of celebrating or bemoaning State Farm’s latest move.
