Our thinking

Insuring the Uninsurable

17 January, 2025

The wildfires burning across Los Angeles County, are a horribly stark reminder that the role of insurers in a warming world is becoming increasingly complex. Even before these fires, homeowners in fire-prone areas like Pacific Palisades and Altadena were facing a harsh reality: their insurance policies weren’t being renewed. Rising risks and costs have led insurers to pull out of these markets, leaving thousands without the coverage they thought they could rely on. Now is the time to get climate ready. Insurers like Aviva and, who we worked with to develop their Climate-Ready Index, have recognized the interconnected challenges of the climate crisis and the pivotal role the insurance industry is poised to play in driving adaptation.

The financial fallout is staggering. Damage estimates range from $135 -$150 billion, with officials cautioning it could become the most expensive disaster in U.S. history once all the losses are tallied. For those unable to obtain private insurance, many have turned to California’s FAIR Plan. This state-backed last resort option now covers 452,000 policies, more than double the number it did four years ago. As the cost of damage soars into the billions, as of last week the programme had just $377 million available to pay claims.

The challenge isn’t limited to California. Globally, natural disasters caused $320 billion in damages in 2024, a third higher than the previous year. With 2024 also claiming the title of the hottest year on record, it’s clear that climate change is pushing us into uncharted territory. The planet has now surpassed 1.5 degrees Celsius of warming above preindustrial levels, a threshold once seen as a critical limit and the effects are being seen everywhere.

Insurers are businesses, and like most businesses, they won’t operate where they can’t make money. The rising cost of climate-related disasters is making it harder for insurers to stay in high-risk markets. This withdrawal, in turn, places the burden on governments and individuals.

As we struggle to afford the rising costs of climate change, climate adaptation is needed more than ever. By fostering collaboration between insurers, governments, urban planners, property developers, and individuals, we can better prepare for the risks ahead. Sharing and using climate risk information can guide smarter decisions, whether it’s designing more resilient cities, choosing better locations for crops, or planning for natural disaster recovery. The changing role of insurers in this landscape isn’t just about stepping back from risk but finding a way adapt to the realities of a warming world.

By Meg Seckel