Climate change is contributing to increased risk of property damage from wildfires, and areas of the state once considered to be not at high risk are now being scorched by fires, says California Insurance Commissioner Dave Jones. The commissioner announced today that more than 10,000 claims have been filed, totaling $845 million in insured losses, from the Carr and Mendocino Complex fires alone, which are now counted among the most destructive wildfires in the state’s history.
“We should remember that the vast majority of California’s most destructive fires occurred after September 1, and fire experts tell us that the worst fires for 2018 may still be ahead of us,” Jones says. Jones is attempting to convince insurers to consider climate risk and the role insurance can play in addressing the three types of climate risks facing insurance companies: physical, transition and litigation risks.
In a new report titled Trial by Fire: Managing Climate Risks Facing Insurers in the Golden State, the California Department of Insurance points out that climate scientists have attributed the rise in destructive wildfires in part to climate change, adding that between fires, hurricanes, droughts and floods, insured losses were $12.6 billion in 2017.
But Risk May Actually Increase if Climate Improves
Insurers collectively hold and invest trillions of dollars in their reserves. If markets and governments are successful in transitioning away from reliance on fossil fuels and a carbon-based economy, the value of such investments could decline in response. Transition risks reflect the uncertainty of financial markets in a potentially carbon-constrained world, according to the report.
There are also climate-related liability risks. “It is possible that the law will eventually provide that greenhouse gas emitters are liable for climate-related damages, which in turn insurers might be obligated to pay for,” Jones writes in the report’s foreword.
As risks grow and combine, insurers will face increasing systemic barriers to offering affordable insurance statewide, according to the report. “A range of actions from insurers, regulators, lawmakers, and consumers will be necessary in order to preserve insurance availability, adequacy, and affordability as climate change worsens,” the report states.
The report was authored by Dr. Evan Mills, Principal of Energy Associates, a California-based energy and environmental consultancy, the climate policy experts at UC Berkeley School of Law’s Center for Law, Energy & the Environment, and the California Department of Insurance.