FORTUNE OCTOBER/NOVEMBER 2021 131THIS YEAR will be remembered as the one when
climate-induced disasters—floods in China and Germany,
hurricanes in New York and Louisiana, wildfires in Greece
and across the American West—reset the global outlook.
Millions of people who either didn’t grasp the intensifying
risk of climate-induced catastrophe or ignored it are con-
fronting a new reality—one not just psychological but also,
and more immediately, economic. Policymakers in Wash-
ington and other global capitals continue to dither about
whether to impose a serious price on carbon emissions—a
seemingly endless debate that in November will top the
agenda of yet another United Nations climate conference,
in Glasgow. But industries from automakers to oil produc-
ers to consumer products manufacturers to insurance
firms are concluding that they no longer have the luxury to
wait. Indeed, in responding to climate change, the capital-
ists are leading the politicians.
No sector feels more keenly than insurance the im-
perative to integrate climate risk into its economics. As
vast tracts of the planet flood and burn, it has billions of
dollars at stake. Consulting firm Milliman, relying on data
from the National Association of Insurance Commission-
ers, has reported that from 2016 to 2019, insurers forked
over $37 billion for wildfire losses in California alone, a
sum that exceeded the $32 billion in premiums they had
taken in. Payouts for 2020 and 2021, years of even bigger
wildfires, could well end up higher.
California is the unquestioned epicenter of the fire-
insurance crisis. The state is currently in the fifth year of
a stretch of historically destructive conflagrations: The
eight biggest wildfires in California history, in terms of
acreage burned, have taken place since 2017, according
to Cal Fire, the state’s wildfire-fighting agency. As devel-
opment has pushed more people into former wilderness,
and as severe drought and higher winds—both linked
to global warming —have extended wildfire’s reach, the
stakes in lives and property have soared. California
wildfires have consumed at least 11,000 homes and other
structures in the past five years—impacting homeowners
from hardscrabble towns in the Sierra Nevada moun-eight miles of Portola Valley, its smoke plume turning the
skies above the town a putrid, pallid orange. More perma-
nently, the fire altered Babb’s view of her world. The ecology
“has changed,” she says. “We’re a tinderbox here.”
Last November, fear turned to fatalism. Babb got a letter
from Safeco, the company that had insured her homes for
more than 15 years. Safeco informed her it was going to
drop her homeowners policy in January; it had concluded
her house in the trees was too severe a fire risk. For the next
several weeks, Babb searched for another insurer, but other
carriers, too, saw her house as a firetrap. Finally, days before
their policy was to expire, she signed up for the California
FAIR Plan, a last-resort fire-insurance pool that California
had established following urban riots in Los Angeles in the
1960s for people unable to get coverage through the regular
market. Still, she will pay $8,000 annually for her full
complement of homeowners insurance, about $7,000 of it
for fire. That’s four times what she paid a year ago.
Babb and Aloisio, like many of their neighbors, can
afford the expense. But even their rarefied zip code offers
a window into the economic fallout from wildfires—
recurring disasters that are intensifying in part owing to
climate change. Here as elsewhere in California and across
the American West, a surge of decisions by insurers not to
renew the policies of property owners in combustible loca-
tions is spurring political fights and stoking fears of sinking
property values. More consequentially, it is exacerbating
societal inequities in ways that foreshadow dilemmas that
will become more common in a warming world.
Over the past two years, insurance companies worried
about wildfires have ditched perhaps as many as 500 of
Portola Valley’s approximately 1,800 houses, estimates Jeff
Aalfs, a town council member. And that’s just the start, fig-
ures Jeremy Dennis, the town manager. “Over time, I would
expect the majority of people to have an issue,” Dennis tells
me one recent morning, as we sit at a picnic table outside
Portola Valley’s handsome, wood-sided, LEED Platinum–
certified town hall. Towering over us is a circle of 100-foot-
tall redwoods, known as a fairy ring. Nearby, a group of
locals is preparing for an outdoor chair-yoga class.
A wider degree of uninsurability would make Portola
Valley even more exclusive. Because mortgage lenders
typically require fire insurance, the only people with the
wherewithal to live in what insurers deem a fire-prone
no-go zone would be those affluent enough to pay cash for
their houses and to shoulder the risk of watching that in-
vestment flame out. What dislocates Portola Valley, more-
over, is likely to threaten the very viability of less affluent
California communities, where the average homeowner
has much less in the bank. “The state is suddenly going to
have millions more houses that can’t get insurance,” says
Dennis, who himself recently lost his fire coverage for a
cabin he owns in Arnold, a mountainous town between
San Francisco and Lake Tahoe. “We’re just one city among
hundreds that has this issue.”
“The state is going
to have millions
more houses that
can’t get insurance,”
warns one town
official.