DISASTER INSURANCEState Farm’s California Pullout: What It Means for Climate Adaptation and Communities
State Farm recently announced that it will no longer be offering new insurance policies to homeowners in California. The company made it clear that it no longer made financial sense to continue covering properties in the state due to its growing risk of wildfires, in addition to other challenges. State Farm is not alone in its departure; nor is California the only state in the red zone. As climate change magnifies the risks and impacts of disasters like wildfires, hurricanes, and floods, the insurance industry is being forced to shift strategies.
State Farm recently announced that it will no longer be offering new insurance policies to homeowners in California. The company made it clear that it no longer made financial sense to continue covering properties in the state due to its growing risk of wildfires, in addition to other challenges.
State Farm is not alone in its departure; nor is California the only state in the red zone. Allstate announced a similar move just a few days ago, as did AIG last year, and insurers are increasingly wary of operating in hurricane-stricken states in the Southeast. As climate change magnifies the risks and impacts of disasters like wildfires, hurricanes, and floods, the insurance industry is being forced to shift strategies.
Do decisions like State Farm’s aid in climate adaptation and moving people out of harm’s way? And what do decisions like this mean for vulnerable communities? Below, two Climate School experts weigh in on these questions and more. Lisa Dale is a lecturer at the Climate School and the co-director of the Undergraduate Program in Sustainable Development. Alex de Sherbinin is a geographer at the Columbia Climate School’s Center for International Earth Science Information Network (CIESIN). Marco Tedesco is a glaciologist at the Climate School’s Lamont-Doherty Earth Observatory.
All three scholars will delve deeper into the challenges of moving people and communities away from climate-related risks at the upcoming Managed Retreat Conference, hosted by Columbia Climate School from June 20 to 23.
Sarah Fecht: How surprising was this move by State Farm?
Marco Tedesco: What is happening [in California] is a “phenomenon” there, but it is the tip of the iceberg of what we expect to see in the future. The model currently used by insurance companies is not sustainable and it fails especially in the case of climate change, where historical information of events is absent, where one single event is sufficient to create enormous damage to people and infrastructures, and where it is difficult to predict both in space and time. Climate change is, among other things, the greatest challenge to the insurance market of these decades.
