The deadly fires that devastated Los Angeles and displaced hundreds of thousands of people in January have been finally contained, but they left another sort of firestorm in their wake—one raging around the insurance industry and its shrinking coverage of climate risks such as extreme wildfires. Climate change increased the likelihood and severity of the fires—by far some of the most destructive in the city’s history. The blazes killed at least 28 people and destroyed some 16,000 structures over nearly 50,000 acres—an area larger than the city limits of San Francisco. Insured property damage alone is expected to reach as much as $40 billion. The question of who pays looms large.
For at least 50 years, the insurance sector has been aware of the physical risks of climate change and that greenhouse gas emissions, primarily from fossil fuels, are overwhelmingly responsible for rising temperatures. Despite this, U.S. insurance companies have investments of more than $500 billion in fossil fuel-related assets. The underwriting business of major insurers remains heavily focused on the fossil fuel sector, with the top U.S. insurers of fossil fuel businesses earning $5.2 billion from underwriting in 2023.
After decades of pocketing premiums from homeowners and investing significant portions of that money in the fossil fuel industry that drives climate change, private insurers like State Farm and Berkshire Hathaway carved out fire coverage from their policies or pulled out of the California market altogether…