Like a bad neighbor, State Farm is gone from California

San Francisco Chronicle, by David Arkush and Carly Fabian, July 12, 2023

State Farm’s decision to stop providing new homeowners insurance policies in California is an indicator of the growing damage caused by climate change. As climate-driven disasters lead to higher losses, insurers like State Farm will raise prices and cut back coverage or even flee.

Far from neutral victims, though, insurers are profiting from both sides of this crisis. They collect premiums and investment profits from fossil fuels while extracting ever more from consumers whom they plan to abandon.

To be clear, there is no question that climate change is disrupting insurance markets. The rising frequency and severity of disasters are driving up the cost of insurance and destroying some insurance markets entirely by rendering areas “uninsurable.”

But there’s more going on here than a simple story of climate disasters disrupting the math of insurance.

The root cause of the climate crisis is the rampant burning of fossil fuels. Insurers are critical gatekeepers for the fossil fuel industry, providing the insurance that allows companies to operate. As experts in evaluating risk and extreme weather, insurers knew about climate change early on. But in their pursuit of short-term profits, they didn’t stop underwriting fossil fuels.

Many are still underwriting the most reckless and dangerous parts of that sector, like the expansion of fossil fuels. Some insurers, largely in Europe, have begun restricting their underwriting of fossil fuels, but U.S. insurers are dragging their feet, even as they increasingly abandon homeowners.

Insurers also invest heavily in fossil fuels, unconscionably using their customers’ premiums to profit from businesses that will destroy their homes and, in some cases, even kill them while driving up insurance costs and making many areas uninsurable.

State Farm is a prime example of insurers’ hypocrisy. Rather than suffering financially in California, the company has made substantial profits in the state in recent years, along with other homeowner insurers whose profits in California have been four times the national average, even after accounting for major wildfires. At the same time, the latest data shows State Farm alone had $30 billion invested in fossil fuels and the industry overall had over $500 billion.

The crisis has also been a boon for industry lobbyists who have seized it as an opportunity to bully states and bilk customers. When State Farm announced its decision to stop offering new California homeowners’ policies, the industry’s primary lobbying group, the American Property Casualty Insurance Association, claimed insurers must be allowed to use secret models to set profitable rates. The industry has long wanted those models because they make it harder to catch insurers overcharging for policies. Rather than work on a transparent approach to modeling climate impacts, the industry is pushing a consumer protection rollback it has sought for decades.

The industry playbook appears to be this: Profit as long as possible from fossil fuels. Stick customers with not just direct climate harms, but also higher premiums, while delaying, denying and low-balling claims. Bully regulators for giveaways. Then leave.

Some neighbors. 

Although the industry isn’t putting forward serious solutions, there are steps insurance regulators and legislators can take. In an emergency, the first step is to stop the harm. California can start by requiring insurers to align their underwriting and investments with science-based climate targets to stop insurers from contributing to this crisis.

Regulators can also explore transparent solutions for pricing climate-related risk and consider developing public solutions to provide reinsurance, which is essentially insurance for insurance companies. Public reinsurance programs would facilitate reimbursements for claims above a high dollar amount to insurers that expand their coverage, allocating risks in a way that creates stability for insurers and a stronger safety net for the public.

As insurers leave vulnerable areas, and unregulated reinsurance prices soar, a public backstop for the highest losses would provide more certainty for insurers who want to offer coverage in vulnerable areas while creating a stronger safety net for consumers.

After each disaster and withdrawal, industry trade groups will push for their wish list — with no promise to stay, even if they get everything on it. It’s time for the public and regulators to advance real solutions.

David Arkush is the director and Carly Fabian is the policy advocate for Public Citizen’s Climate Program.

[Note from BenIndy Contributor Nathalie Christian: The sections bolded above reflect my added emphasis.]