This story is the last in a four-part Grist series examining how climate change is destabilizing the global insurance market. It is published in partnership with the Economic Hardship Reporting Project.

When David Marchant looked at the weather forecast in early July, he had a bad feeling. His 50-acre farm sits in the bend of the meandering Lamoille River in northern Vermont. He watched its banks warily as a steady downpour soaked the landscape. Soon, the river began to rise. By 7:30 the next morning, he and his crew were out in the mud, trying to harvest all they could save. 

Two months’ of rain fell in two days. Despite their efforts, Marchant’s River Berry Farm quickly lost upward of 10 acres of crops, with lettuce and summer squash suddenly swimming in the flooded fields. He estimates the torrents cost him around $150,000 in just 48 hours.

The storm wiped out roads and bridges and inundated homes across the state. The catastrophe came at a particularly hard time of year for farmers to face disaster: In early summer, many are heavily invested in their season, but not yet able to harvest. The Vermont Agency of Agriculture, Food, and Markets estimates that the state’s food producers lost over $16 million as a result — somewhere between one-third and one-half of all the state’s yield.

As the climate changes, American farmers face a slew of new threats to their harvests and business models. More frequent floods and droughts can wipe out months of work overnight. Rising temperatures are expected to slow plant growth in the Northern Hemisphere within the next decade, while higher carbon dioxide levels reduce the nutritional value of fruits and vegetables. Altogether, a recent NASA study found that some yields could decrease 24 percent by as soon as 2030.

Research from the American Farm Bureau Federation suggests that nationwide, natural disasters caused $21.5 billion in agricultural losses last year. Only about half of those were protected by insurance, the majority of which is sold through federally-backed programs. Their payouts to farmers have increased over 500 percent in the last two decades. 

Back in 2007, a report from the Government Accountability Office, or GAO, called climate change a looming threat to insurance markets, and pointedly noted that while large private insurers were already incorporating it into their risk management, the two major federal insurance programs — for flooding and agriculture — ”have done little.”

That’s a problem not only for food security, but for the people growing the nation’s food. “I don’t think there is an appreciation of how significant the detrimental changes might be, because I think people are thinking things are already bad,” said Jeffrey Amthor, principal scientist at Verisk Analytics, a risk assessment firm that advises insurance and reinsurance companies.

Shortly before this summer’s flooding, Grace Oedel, the executive director of the Northeast Organic Farming Association of Vermont, was helping growers deal with hazardous wildfire smoke from Canada. Before that, a late spring freeze withered buds on apple trees and blossoms on blueberry bushes, costing Vermont farmers $10 million in lost production. The nonprofit has an emergency fund that food producers can apply to, and in the last few years, the organization has seen a surge in such petitions. “It just feels like nothing’s predictable,” Oedel said. 

The financial stress this causes can be devastating: One recent study found 60 percent of farmers and their children are experiencing depression — about double the national average. Suicides within farm families are skyrocketing. “It’s definitely intensifying,” Oedel said. “The question is, how long can these farmers hold on before they get some kind of support?” 

April 14, 1935, began as a sunny, spring Sunday in Kansas. But by afternoon, a dark cloud billowed over the horizon, so dense it obscured sunlight like an eclipse. It lashed across the plains at 60 mph. People suffocated, their lungs filled with dust. “The onrushing cloud, the darkness, and the thick, choking dirt, made this storm one of terror,” reported the Weather Bureau, now known as the National Weather Service. 

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The “black blizzard” was formed of displaced topsoil, becoming one of the worst of the Dust Bowl’s storms that drove hundreds of thousands of people off their land in search of other work. A lethal combination of destructive farm practices and an extended drought desiccated the region. In response, Congress authorized the Federal Crop Insurance Program, or FCIP, in 1938. No one was sure it would work. At first, the effort ran into the same hurdles private insurers had: Participation was low because rates were high, yet payouts still greatly exceeded premiums. At the time, the Christian Science Monitor asked, “Will the program become in effect an underwriting of high-risk areas which in fact ought to be retired from farming?” 

Nevertheless, by 1980, the federal government decided to bolster its support for crop insurance, eliminating an overlapping disaster payments program. As part of the Federal Crop Insurance Act of 1980, the U.S. Department of Agriculture, or USDA, authorized a small number of private companies to sell these policies, while heavily subsidizing their cost. Today, taxpayers cover about 60 percent of these premiums, more than ever before.

If weather reduces an enrolled farmer’s yield or revenue from a particular crop, the FCIP will issue indemnity payments, essentially guaranteeing a set amount of income. Most of those subsidies are going to commodity crops; corn, soybeans, wheat, and cotton have received 75 percent of all payments in the last two decades. “It’s really concentrated to just a few states, and also just a few crops,” said Anne Schechinger, Midwest director at the nonprofit Environmental Working Group, which recently published a report on crop insurance. 

While these average yields are supposed to be set by looking at a grower’s historical output, in practice, bad years are frequently excluded from those calculations, said Schechinger. “That’s something we see a lot in California, Texas, Oklahoma,” she said. A provision called Actual Production History Yield Exclusion allows farmers to ignore up to 15 bad years when calculating typical yields, falsely raising insurance payouts. This misrepresentation is highest in the southern Great Plains — the same region that experienced the worst consequences of the Dust Bowl.

The FCIP will also pay the same farmers for the same kinds of losses year after year — and it often does. One hotspot for claims is the Mississippi River Critical Conservation Area, a USDA-designated area across 13 states. It has accounted for $1.5 billion of federal payments from flood damage since 2001, which Schechinger says could have instead been used to transition more 300,000 acres of frequently inundated land out of production. Forty unlucky counties, primarily in the Corn Belt, received payouts for losses related to both drought and extreme precipitation every year for the last two decades. Failing to account for these risks in insurance policies raises the chance that today’s potential solutions will become insufficient.

Critics say the crop insurance program is now actually deterring climate adaptation by minimizing the true costs of growing in places that have become unsuitable. In some cases, federal crop insurance is also actually making climate impacts worse: As groundwater declines across the Midwest, for example, farmers may risk losing coverage if they take steps to conserve water, since irrigated crops receive higher payouts. This highlights the need for urgent reforms in the next farm bill, legislation passed approximately every five years that addresses the United States’ agriculture and food systems. “We know the last 20 years aren’t the next 20 years,” Schechinger said. 

Last year, federal crop insurance payments topped $19 billion — the highest since 2001, when current subsidy levels were set. (A USDA spokesperson told Grist, “The total amount of losses has increased during that time, but so has the program’s size.”) According to several reports from the GAO, the share of the total costs paid by taxpayers has also increased.

Yet a third of all subsidies for the FCIP are now being paid out not to farmers, but the private companies that sell and service its policies — many of whom are large corporations. In addition to their administrative costs, these companies earn a 14.5 percent return from the government, much higher than similar industries, like property insurance. Reducing that overhead rate could free up financing for the growers who need it most. 

This could expand other federal programs like the Whole Farm Revenue Policy, which insures the revenue of all the commodities on a farm, making it more accessible to the kinds of small, diversified operations that grow for farmers markets. “It’s a great policy, but it’s not subsidized as highly,” said Schechinger, “so not that many farmers use it.” She adds that insurance agents are typically compensated based on the value of the premiums they sell, incentivizing them to sell more expensive policies to larger players. The USDA introduced a “Micro Farm” program in 2022, which is intended to be a better fit for small operations, but nationally, there have only been 120 such policies sold so far. 

Watchdog groups like GAO have long criticized the crop insurance program’s poorly managed approaches — like propping up water-intensive cotton growers in the Southwest desert — but clearly the risks to farmers are also rapidly increasing. Hundreds of cattle died this summer in Iowa as the heat index climbed to 117 degrees Fahrenheit. In addition to extreme temperatures, ongoing drought continues to plague much of the Midwest’s breadbasket. According to recent research from Stanford University, climate hazards have increased annual crop insurance losses by about $1 billion every year since 1991. 

The threat of such catastrophes now looms over agriculture across the country. As sweeping changes start to alter what food can be produced where, Schechinger says Congress needs to “really reevaluate how we’re doing business as usual.” 

The next farm bill, though its timing is uncertain due to a looming government shutdown, will determine federal agriculture policy for the next five to 10 years. It is expected to be the most expensive in the country’s history. “We choose how we subsidize everytime we make a farm bill,” Oedel, of the Northeast Organic Farming Association of Vermont, said. “That is a policy choice, not a reality about how food has to grow.” 

As dawn rises over a field of corn in Illinois, light beads off the collected dew, the horizon stretching out over the rippling stalks. That precious, twinkling moisture is the reason daytime summer temperatures have so far remained fairly stable across the Midwest, “counter to almost everywhere else on the planet,” said Verisk’s Amthor. He recently conducted a report looking at the impacts of climate change on the region’s yields of this commodity. To his surprise, he found that plants in the rolling, endless rows across the Corn Belt are drawing water from the soil and releasing it as vapor at such a scale that it is actually helping keep surface temperatures cooler. This has shielded the area from the poor harvests other places are already facing. 

But as the mercury continues to rise, this natural air conditioning won’t be able to keep compensating. “If the Midwest catches up, and it does that in a rapid way, I think we probably don’t appreciate how significantly and negatively that might impact the Midwest,” he said. The U.S. is the world’s largest producer and exporter of corn, so this could have global consequences. 

The more we can do to slow down these changes, the easier it will be to adapt, Amthor says. It takes time to breed new genotypes of plants that might be able to better endure heat, or bring new technologies into the field. That kind of tinkering is something farmers naturally excel at, says Rich Bonnano, a fourth-generation farmer who’s now the director of the North Carolina State University Extension program. It is, in a way, a form of insurance separate from the traditional financial systems. “I think about avoiding risk all the time,” he said. “You can’t stop a hurricane, but maybe some varieties can handle wet roots and standing water.” 

In addition to breeding resilience into crops, Bonnano’s family’s experience suggests that diversifying crops provides its own form of insurance. Much of their 50 acres in Methuen, Massachusetts, flooded in 2006, drowning several plantings of lettuce and spring greens, and ruining acres of plastic mulch and drip irrigation. It cost Bonnano, who was uninsured, an estimated $60,000. He then discovered that agriculture isn’t eligible for the disaster relief loans available for small businesses. “We got nothing,” he said. 

But Bonnano had carefully planned a variety of crops to handle exactly that kind of risk. He was able to replant some of his cool season vegetables, including leaf lettuce and other greens. Warm season vegetable starts like peppers and eggplants were still safely in greenhouses, and flowers rounded out his end-of-summer income. “We didn’t have our eggs in one basket,” he said. At the end of the year, the farm’s revenue was only 10 percent less than the previous year. “The more diversified you are, the more you’re able to handle this year-to-year variability,” he explains, even without an insurance policy. 

In Vermont this summer, Marchant’s similarly wide-ranging plantings also helped him recover. “We are naturally insured with our diversity,” he says. He had previously looked into the Whole Farm Revenue Policy, and found it too expensive. But he had enrolled in the USDA’s Non-Insured Crop Disaster Assistance Program, which, despite its name, functions a lot like insurance: When enrolled farmers lose more than 50 percent of an expected crop, it begins paying for those losses at 55 percent of their market value, with higher electable coverage for an additional price. This won’t necessarily cover all of his damage, Marchant said, “but the [upfront] cost is incredibly cheap.” 

The disaster assistance program is run through regional governments, in Marchant’s case, Franklin County. Its agents were more familiar with dairies, and in assessing his damages initially thought “lettuce was lettuce,” he said. “Well for us, lettuce is 17 different plantings,” including multiple varieties. He says the county had a “steep learning curve” to handle specialty vegetables, as it needs data on typical crop yields to determine pricing. “It takes a while to build all that, but they are getting better.”

In the meantime, many of his neighbors remain uninsured, due to the systematic gaps that persist for small farmers. In the absence of official coverage, some are turning to crowdfunding platforms like GoFundMe. Following a disaster, such crowdsourcing is at least more immediate, Marchant adds. “You get the money quick,” he said. “It takes forever for the government.”

But such efforts come with complications. Despite their potential, most campaigns fail to meet their goal. Furthermore, receiving funds for specific needs like flood damage can adversely impact eligibility for assistance from the Federal Emergency Management Agency, or FEMA. (Farms themselves are not eligible for FEMA aid, but residential repairs often are.) 

As the growing season draws to a close in Vermont, insurance adjusters await soil testing results, and to see which crops might have recovered from the year’s disasters. The federal government eventually declared Vermont a natural disaster area, making its farmers eligible for expanded low-interest loan programs through the USDA. But that doesn’t really help, Oedel says. “Frankly, nobody wants to take on a loan when they’re already extremely in debt.”

Instead of incentivizing farms like Marchant’s — whose organic approach has been shown to reduce greenhouse gas emissions, improve soil carbon sequestration, and support biodiversity — government support continues to leave out the very farmers who could help improve climate resilience. 

As severe weather becomes the norm, the damage of these disasters is usually tallied individually. But when Vermont’s floods were followed by a record-breaking hurricane hitting California’s vegetable farms, which grow a third of the country’s produce, even as a drought shrivels wheat fields across the Midwest, the effect is larger than the sum of its parts. “This flood is not like a ‘flood and done’ experience,” Oedel said. “The economics of it do not work. And that’s really scary.” 

Even if your hometown is lucky enough never to be hit by a major catastrophe, our food system is becoming increasingly brittle — and agriculture insurance programs are failing to keep up. 

This story was originally published by Grist with the headline ‘Nothing’s predictable’: Extreme weather is ruining farmers’ crops, and their finances on Oct 13, 2023.

The energy required to heat, cool, and power American homes makes up about a fifth of all greenhouse gas emissions the United States produces every year. And, even as the nation transitions to renewable energy and buildings grow more efficient, the housing sector is not changing fast enough to meet the nation’s climate targets. At the same time, a growing number of Americans — some 20 million people as of 2022 — are falling behind on their utility bills. 

On Thursday, the Department of Energy took aim at both of those issues, announcing the Biden administration’s goal of cutting the cost of home decarbonization in half and slashing household energy costs at least 20 percent by the end of the decade.   

“Every American deserves to live in a home with affordable, clean, reliable power,” said energy secretary Jennifer Granholm in remarks prepared for the announcement. Energy savings, she said, “means real money back into the pockets of hard-working Americans.”

The effort will focus on spurring cheaper ways of retrofitting households that make below 80 percent of their area’s median income. Granholm highlighted low-cost approaches such as installing simple, compact heat pumps and insulated panels for exterior walls.

The new targets are part of the Biden administration’s broader Justice40 initiative, which aims to funnel 40 percent of the benefits of federal climate action to low-income and minority communities. But the hope is that any solutions will be applicable elsewhere as well. 

“We want to look at technologies that can start in affordable housing and go to the larger built environment,” said Ram Narayanamurthy, deputy director of the Energy Department’s building technologies office. ”We know that we have to drive down the costs, and make energy more affordable.”

The push announced today, called the Affordable Home Energy Shot, is the eighth and final pillar in the agency’s “Energy Earthshot” initiative, the objective of which is to accelerate the Biden administration’s attempt to roughly halve the nation’s emissions by 2030. The first of these initiatives, the “Hydrogen Shot” announced in the summer of 2021, set the goal of reducing the price of clean hydrogen fuel by 80 percent by 2030. Other “shots” include driving down the cost of floating offshore wind technology, geothermal energy, and technology to remove carbon dioxide from the atmosphere. 

 “The Affordable Home Energy Earth Shot is a great example of the federal government stepping in to fill a real gap in the market,” said Sara Baldwin, senior director of electrification at Energy Innovation Policy & Technology, a nonprofit energy and climate think tank. She pointed to the success of the Department of Energy’s 2011 SunShot initiative to cut the cost of utility-scale solar to $1 per watt within a decade. Prices hit that mark in 2017, roughly three years early.

Funding for the latest efforts flows from the bipartisan infrastructure law enacted in 2021 and the Inflation Reduction Act of 2022. The two sweeping laws provided $13.5 billion for the Department of Energy’s housing programs.  

On Thursday, the Biden administration also announced $30 million in clean energy funding from the infrastructure bill for 27 states, counties, and cities, as well as the MOWA Band of Choctaw Indians in Alabama. The grants, awarded to help primarily low-income and minority communities, will be disbursed by states and local governments to fund rural electrification projects, build electric vehicle charging stations, and power hospitals, among other local initiatives. 

The Department of Energy admits that ensuring Justice40 communities will get their share of the research and development benefits from the latest energy shot will be harder than simply tracking grant dollars. Many of those same communities have already criticized the administration for failing to define exactly what such a “benefit” is and keeping what amounts to a very loose score of where the funds are going. 

“Not every project is going to be something that directly serves a community,” said Michael Reiner, a policy analyst in the Energy Department office of economic impact and diversity. ”But you want to know that what you’re investing in is making progress toward something that will.” 

The department is also still in the process of establishing the benchmarks and processes for assessing progress on achieving the latest Earthshot’s overall reduction goals. But, officials say, the first step is ensuring that everyone is working toward the same end. 

“It’s really about pushing the innovation forward with new materials [and] new technology in a way that can bring down the cost of what’s currently needed to decarbonize homes,” said Jennifer Arrigo, the department’s director for science and energy crosscuts. “Energy Shots are meant to provide that North Star.”

This story was originally published by Grist with the headline Biden administration launches ‘Earthshot’ effort to slash energy bills on Oct 12, 2023.

This story is the third in a four-part Grist series examining how climate change is destabilizing the global insurance market. It is published in partnership with the Economic Hardship Reporting Project.

It wasn’t the first summer Justin Guay went outside and choked on smoke. Or the second. But by the time wildfire season seemed to last year-round, he decided to move his family away from California and back to Utah, where he’d grown up. 

In 2020, Guay bought a house in Wasatch County near the jagged mountains, where he thought the worst climate impacts would be warmer winters with higher snow lines. An avid skier, Guay thought that was bad enough. But this spring, a letter arrived from his homeowners insurance company, brokered through Progressive. “They were dropping us because they would no longer be providing insurance — period,” he recalled. 

As they scrambled to find new coverage, Guay and his wife were shocked when their first inquiry was rejected. “They said, ‘We no longer provide insurance to homes in your area.’” Other companies at least provided quotes, though they all offered rates at least double his previous policy. Returning to his home state, he hadn’t considered fires as a risk. They were never a major issue while he was growing up. Shortly after he moved back, however, 5,000 people were evacuated from a neighboring town during a large burn.

As climate risks upend the insurance market, homeowners like Guay are being caught off guard. Losing his coverage really highlighted “the limitations of your individual ability to cope or deal with these impacts,” said Guay. It’s a nationwide problem he’s now turning to at work as the director of global climate strategy for the Sunrise Project, a climate justice nonprofit.

Climate change is now the main driver of the increase in fire weather in the western United States. As conditions get warmer and drier, blazes are burning over larger areas and scorching places once thought of as low-risk. This summer, around 100 people died as flames tore through Maui in one of the deadliest wildfires in American history, leaving behind $3.2 billion in property damage. Across the Western United States, existing dangers are getting worse: Four of the five largest wildfires in California’s history have occurred since 2020. Meanwhile, close to a quarter of the Americans now at risk of catastrophic wildfires live in the eastern half of the country, in places that may not be prepared to respond.

All this damage has racked up quite the bill. Nationally, wildfires caused more than $22.5 billion of losses in 2017, a record surpassed in 2018 when blazes burned through $29 billion, while 2020 and 2021 took third and fourth place in the echelon of damage. Those are just direct costs; a 2020 study found the indirect costs of 2018’s wildfires alone — things like health care costs and disruption to the broader economy — cost almost $150 billion. 

Compounding all this is the boom in people moving to fire-prone places. Between 1990 and 2010, more than 25 million people relocated to areas known as the wildland-urban interface, where human development abuts wilderness. As inflation spikes the costs of rebuilding, those decisions are increasingly expensive: In the last five years, wildfires cost the United States $68.4 billion.

These losses are contributing to the destabilization of the homeowners insurance market. The insurance industry argues that attempts to control pricing — like California’s regulation that required insurers to set their rates based on damages over the past 20 years, rather than looking ahead at future hazards — have backfired. Many companies have chosen to stop selling new policies in California, while others have dropped existing policies, causing an additional 50,000 people in the state to lose their coverage just this summer. 

Yet as Guay found, simply relocating wasn’t a solution. Insurance, the financial mechanism that has underpinned the global economy for the last 400 years, is no longer guaranteeing most people’s largest asset. “There’s nowhere to run,” Guay said. 

In California, many residents find themselves on the leading edge of this crisis. Rural areas were the first to be affected. But now, even people in suburban areas and across a broad spectrum of society — including politicians themselves — are seeing their coverage vanish. 

The problem itself is pretty simple: Nearly a quarter of Californians now live in areas at risk of catastrophic fire. Knowing what to do about it is a much thornier question.

After several close calls with nearby fires, Beth Pratt decided to refinance the mortgage on her home in Midpines, outside of Yosemite National Park, and spent $100,000 — all the equity in her home and all her savings — to reduce her risk. She installed a metal roof and built a water storage tank with a fire hose hookup. She completely sided her house in metal, replaced her decking and railings, and cleared brush. Most of these measures went far beyond the basic tree trimming that Allstate requested during her last home inspection. She will now be paying off her mortgage till she is 80. Despite her efforts, she got a letter this July canceling her policy. 

In 2018, Governor Gavin Newsom announced a moratorium on homeowner policy cancellations for one year in ZIP codes near wildfires, a condition which applied to Pratt’s community after a fire in July 2022. Pratt’s cancellation arrived this summer almost exactly when that grace period ended, right in the middle of wildfire season. Last year, the state’s insurance commissioner required insurers to give discounts for the kind of steps Pratt took, but rather than adjusting her rates, Allstate chose to drop her coverage. (Allstate made a quiet decision last fall to stop writing new policies in California. State Farm followed suit this spring.) “I feel like I did everything right. But it didn’t matter,” she said. 

Pratt’s mortgage requires her to have homeowners insurance, putting her at risk of eventually defaulting. She tried to find another private insurer to no avail. Eventually, she turned to the California FAIR Plan, a state-backed policy that covers people who have been denied private coverage at least three times. Its budget comes from levies on insurance companies operating in the state, but these coffers are shrinking: The FAIR Plan itself announced that it was seeking permission from the state’s Department of Insurance to hike premiums by nearly 50 percent. 

Most of Pratt’s neighbors in Midpines have also lost their insurance. Some may still qualify for private policies, but can no longer afford them. “What you’re talking about in an area like mine is not rich people or second homes, but working-class people, people who have lived here their whole lives, losing the ability to insure their properties,” she said. 

Nationwide, approximately one in three houses is located in the wildland-urban interface. But even documenting the hazards has been contentious: The Oregon Department of Forestry tried to issue a map in 2022 showing 80,000 homes were at risk. But homeowners worried this would decrease their property values and raise their insurance rates protested until the state rescinded it. Or take the 2018 Camp Fire, which began when a spark from an electric transmission line owned by the utility Pacific Gas & Electric blew into a firestorm near the town of Paradise. In its aftermath, insurance companies sued PG&E, reclaiming around $11 billion — or about 85 percent of their claims. The utility later declared bankruptcy.

There’s a long history of insurers going after the entities that caused expensive claims, a process known as subrogation. Empire Blue Cross and Blue Shield, for example, won $18 million in 2001 from Philip Morris and other tobacco companies to cover the medical treatment of smokers. Advocates suggest insurers could take a similar approach to the fossil fuel industry, whose product has helped worsen wildfires. Rather than individuals, or even insurers, said Peter Bosshard, the coordinator of the Insure Our Future campaign, “it should be the polluters who pay.” 

Multnomah County, Oregon, took its first step in this direction in June, suing several multinational oil companies for the heat dome that smothered the region in June 2021, killing at least 69 people in the county, which includes Portland. (The death toll across the Pacific Northwest was much higher: at least 250 in the U.S. and another 400 in Canada.) In addition to $50 million in damages, the county is also seeking $50 billion for research and to implement “weatherproofing” to help handle future extreme heat.

“What we’re staring at now is a situation where everything is going to get more expensive,” said David Pomerantz, executive director of the Energy and Policy Institute. Homeowners aren’t the only ones finding they’re priced out of the insurance they need. Utility companies, for example, are also struggling to find wildfire liability coverage to protect them from lawsuits like the ones PG&E faced. That makes upgrading utility infrastructure even more important — but that ultimately costs consumers money, too. PG&E is currently improving its transmission network and asked California regulators for a $3.2 billion rate increase this year, or an average bill increase of around $450 a year. Perversely, utilities themselves primarily profit by making these kinds of capital expenditures, so “every utility in the West is doing this to some degree,” Pomerantz said. 

As this system breaks down, everyone’s feeling the pressure to guess the future correctly. In most states, the industry standard has been for insurers to use catastrophe models to estimate wildfire or other disaster risk in a region over time, then use those predictions to make decisions about their overall risk, like how much reinsurance to purchase as a backstop. 

Technological advances have made it possible to predict hazards not only in your part of town, but also for the exact parcel of land you call home. “We’re entering a new era where you can get at the root cause of mitigating risk, as opposed to just transferring that risk,” said Attila Toth, co-founder and CEO of start-up ZestyAI, which uses artificial intelligence to assess properties. The eight-year-old startup has collected satellite data, building permits, and two decades of historical losses to train its AI, developing a model called Z-FIRE. The company claims it can now spit out a wildfire risk score for all properties in the Lower 48, based on specific information about your home, such as what type of roof it has or what vegetation is nearby. 

ZestyAI’s wildfire model has gained regulatory approval in seven states, including as part of a rate filing by the California Department of Insurance. Among the many high-profile companies now using ZestyAI’s model is Amica Insurance. After the 2017 Tubbs Fire, which destroyed 3,000 homes and killed nine people in Santa Rosa, California, Amica realized that it had mistakenly underpriced high-risk properties, leaving it on the hook for major losses in several counties. The company now uses Z-FIRE, a move Amica says “leverage[s] the power of AI to generate a clear picture of not only how likely it is that a home might be exposed to a wildfire, but also the probability of its damage.” The system has also allowed Amica to “offer coverage for homes that may have previously been declined.” Farmers Insurance says thanks to Z-FIRE’s fine-tuned analyses, it expects to add 30,000 new policies in California. 

Helping both insurers and homeowners get a better sense of their actual risk is long overdue, says Roy Wright, a former director of the Federal Emergency Management Association’s insurance administration. He now leads the Insurance Institute for Business & Home Safety, a nonprofit organization that tries to “translate science into action” for insurance companies and homeowners. It conducts research to provide information on how to prevent damage during disasters. “We show people what actions make a difference,” Wright explained. The institute has spent decades testing construction design, like intentionally setting siding and roofing materials on fire in the lab to see what helps prevent embers from catching. He is lobbying regulators to add the institute’s construction standards to states’ building codes. 

Wright’s organization is now collaborating with ZestyAI to improve its models’ accuracy and to better understand new hazards. But some are leery of these kinds of proprietary datasets, saying that nontransparent pricing decisions may increase discrimination. Unless regulators step in, Madison Condon, a corporate and environmental law professor at Boston University, predicts an obvious consequence will be “huge differentiations in the cost of insurance that could have demographic effects.” 

California currently has some of the most transparent policies, requiring companies to publicly disclose when they won’t renew a policy and to provide homeowners their risk assessments and an opportunity to appeal them. Washington state, in contrast, does none of the above. But the Golden State is also facing some of the highest losses: Insured claims have outpaced premiums in the state since 2016 by more than $4 billion. Insurers, like banks, have to have a certain amount of money on hand, so to sell more policies, they have to increase their capital. Many private companies turn to reinsurers for this, paying them a fee for their financing. But now that risks have increased, reinsurance prices have too: In July, reinsurers increased the cost of U.S. property reinsurance by as much as 50 percent. 

Unlike most other states, California’s insurance commissioner prohibits insurers from passing on these reinsurance costs to the consumer. The goal of measures like this, according to Harvey Rosenfield, an advocate who founded the nonprofit group Consumer Watchdog, was to make insurance available and affordable. During the last insurance crisis in the 1980s, the industry claimed that higher losses and a spike in lawsuits were responsible for rising premiums, which Rosenfield alleges led to discriminatory practices in minority neighborhoods, an issue researchers have identified nationwide. To address these issues, Rosenfield wrote California’s Proposition 103, which passed in 1988. It aimed to rein in costs and increase transparency in the country’s largest market, establishing a review process for rate increases and electing a state insurance commissioner. 

The insurance industry argues Proposition 103 keeps the market from reflecting true risk and forces companies to offer insurance at artificially low rates. Since 2009, California has seen a 335 percent jump in buildings destroyed by wildfires, along with a 270 percent increase in associated costs. But Rosenfield notes homeowners insurance companies in California earned an average annual return on net worth of 8.8 percent over the last 20 years, compared to 6.2 percent nationally. 

Consumer Watchdog says what’s needed to address the lack of affordable insurance is to enforce existing laws. For example, it says its advocacy challenging consumer rate increases has saved homeowners $2.2 billion since 2002. Long-term, the organization thinks the government should be helping homeowners afford to fortify their property, as well as instituting policies that require companies to sell insurance to all owners who meet certain mitigation measures.

In early September, the president of Consumer Watchdog’s advocacy group, Jamie Court, happened to be on the same morning flight to Sacramento as an insurance lobbyist, Michael Gunning. When Gunning began bragging about his efforts to push through a multi-billion-dollar bailout for the industry through California’s state legislature at the end of its session, Court started recording their conversation. “We are trying to jam a bill in the last three weeks,” Gunning can be heard saying. 

The bill, which would have absolved companies of responsibility for covering fire claims under the state’s FAIR plan, failed to pass. But several weeks later, California’s insurance commissioner, Ricardo Lara, announced he would expedite changes to allow companies to use catastrophe modeling and artificial intelligence to take into account projected impacts of climate change in their pricing. He also signaled he would “explore” allowing companies to pass on reinsurance costs. In exchange, insurers will be required to write at least 85 percent of their market share in “distressed areas,” although those have not yet been identified. Governor Newsom supported the changes, immediately issuing an executive order authorizing the Commissioner’s “emergency regulatory action” to bolster the faltering industry. 

Consumer Watchdog says these changes could increase premiums by as much as 50 percent overnight. “Insurers are leveraging a real climate crisis with a false crisis of affordability in order to line their pockets,” said Carmen Balber, executive director at Consumer Watchdog. “If trends continue, and insurers are allowed to continue making those choices on their own, we could be seeing a much more serious crisis for homeowners.”

When these cascading effects hit, it’s going to cost those who can least afford it the most. While insurance is ultimately about managing risk for a single business or person, the escalating nature of the climate crisis can only be addressed by action society-wide. Homeowners insurance is increasingly at the crux of this mismatch: Buying a home is one of the biggest financial decisions in someone’s life, and it’s a long-term investment. But even if you can get — and afford to pay — for insurance when you buy a house, companies reevaluate their policies and premiums every year. “It’s not like we need more information,” Condon said. “We need better ways to think about how to adapt in the face of uncertainty.”

As the stakes rise, the house seems to always win. “I looked up the revenues of some of these big insurance companies,” Pratt says. Their profits might be declining — after making 32 cents on the dollar in 2023, Allstate’s credit dropped for a second time in 2023, to BBB+, a middling rung on S&P’s rating scale — but it’s still “a lot more than I make,” she said. She paid into a policy with Allstate for 32 years, but never made a claim. “What’s fair about that?” she asked. 

Last winter, Pratt’s property was without power for a week, and she stayed warm hauling wood for her stove in a sled over record snowfall. Last summer, she was sweating in an extreme heat wave, watching a woodpecker gasp for breath at her bird bath. She watched, helpless, as a fire burned 127 homes nearby. 

“We are learning to adapt to what it’s going to take to live in this time of climate extremes,” Pratt said, noting that while she ultimately found a California FAIR plan, it doubled her cost. “Rethinking the insurance industry — in this new regime of climate disruption — is going to be needed.”

This story was originally published by Grist with the headline In wildfire-prone areas, homeowners are learning they’re uninsurable on Oct 12, 2023.