Climate Action
Who Pays When Wildfires Strike?
March 10, 2025
Nobody likes paying bills, especially to insurance companies. Yet, we do it with the expectation that they’ll protect and help us recover in a time of crisis. But does their commitment to safeguarding policyholders sometimes take a backseat to their shareholder returns and their bottom line. Is our well-being truly their first priority?
The devastating Palisade and Eaton wildfires in California have destroyed thousands of homes, businesses, both private and public property and left people’s hearts and lives devastated. In fact, it has been one of the most destructive wild-fire events in U.S. history to date in terms of lives lost, structures demolished, and acres burned. Insured losses will most likely exceed $20 billion, and total economic losses are predicted to reach $50 billion, according to JPMorgan.
What’s The Cause of these Fires?
While there will be many contributing factors — like arsonry — the main culprit for all of this death and destruction is essentially climate change, one way or another.
In a nutshell, California is experiencing a dramatic rise in temperatures, while at the same precipitation levels are decreasing. This combination, along with strong offshore winds and low humidity, creates the perfect conditions for drying out brush, grasses, and other flammable vegetation. The increasing heat and dry air have been shown to directly correlate with the spread and intensity of wildfires, making them more frequent and destructive.
How Do Insurance Companies Determine What You Pay Every Month?
Traditionally, insurance companies set premiums based on historical data, assessing past wildfire damage and losses in specific areas to determine risk. However, with wildfires becoming more intense and widespread across California, these traditional models are no longer sufficient. To better assess the current threat, insurers are turning to wildfire simulation models that aim to predict future fire risks.
Since there’s no industry standard for how these models should work, each company interprets the impact of climate change differently, allowing them to define ‘high-risk’ areas based on their own assessments.
This leads to significant variability in how coverage costs are set, with some regions seeing steep premium hikes while others may remain unchanged. However, in 2024, California passed the Sustainable Insurance Strategy, which allows insurers to factor future climate change risks into their pricing models. While this policy aims to stabilize rates in wildfire-prone areas, it faces challenges due to the unpredictable nature of wildfires themselves, making it difficult to accurately assess and price risk.
The big problem is that these new ‘catastrophic risk’ models often struggle with accuracy because they rely on limited and constantly changing data. As urban development accelerates, there are numerous uncertainties that these models can’t easily account for, including shifting construction codes, varying disaster magnitudes, and the evolving vulnerability of communities.
These factors can lead to discrepancies between predicted risk and actual outcomes, causing significant gaps in coverage and inflated premiums. Moreover, the way these models generalize risk to determine insurance rates is not always transparent to the public, leaving consumers in the dark about how their premiums are being calculated.
Are Insurance Providers Leaving People Stranded?
While the effects of California’s new insurance regulations are still unfolding, insurers have been withdrawing coverage, denying recovery claims, and raising premium rates, particularly in wildfire-prone regions. This has left some of California’s most climate-vulnerable populations without coverage.
State Farm, one of the largest insurers in the state, has limited the coverage it offers. In May 2023, the company stopped accepting new home and business insurance policies across all regions in California. They attributed the growing risks of natural disasters, including wildfires, as the primary reason.
Almost a year later, the company also withdrew around 72,000 policies affecting apartment, residential, and business owners.
Following State Farm’s decision to halt on accepting new policies in California, Farmers Insurance also capped the number of new policies they would accept every month in the state. Farmers Direct, a division of Farmers Insurance, withdrew home and auto insurance operations in California completely. While thousands of policyholders were given offers in other Farmers companies, others were left searching for different agents on their own.
However, it should be noted that in December 2024, Farmers Insurance increased its coverage by expanding from its original 7,000 to 9,500 new monthly plans. This initiative came with hopes that the newly implemented Sustainable Insurance Strategy would better control pricing and stabilize profits.
While offering home insurance coverage across 49 states, Allstate had stopped taking new policies on homes, condo and commercial units in California following major losses in 2022.
In addition to raising premiums on its own customers, Allstate now has to pay higher reinsurance premiums. Reinsurance is when an insurance company buys coverage from another insurer to help protect itself from large losses during major disasters. This allows the primary insurer to share some of the financial risk, but the cost of that protection is passed on to consumers in the form of higher premiums.
Which is why as of August 2024, Allstate raised home insurance premiums for existing policyholders by 34.1%, partly to cover the increased cost of their own reinsurance. This increase is the largest premium hike approved by California’s Department of Insurance in the past three years, impacting an estimated 350,000 people. As premiums continue to climb, living in California is becoming more expensive and challenging for many residents.
Insurers Investing Towards Climate Catastrophes
The irony of this situation is that these same home insurance companies are investing in the fossil fuel industry that drives climate change, which in turn increases the likelihood of wildfire activity, potentially putting the properties they insure at risk.
16 insurance firms throughout the U.S. have invested nearly $250 billion in the fossil fuel industry. Almost half of these insurance companies are operating in California, State Farm, Allstate, and Berkshire Hathaway, who have each contributed investments of $30.9 billion, $20.9 billion, and $7.5 billion, respectively.
With extensive research on climate risk, these corporations cannot claim to be unclear about the role fossil fuels play in driving climate change. However, it feels as if some insurance companies benefit from supporting the climate crisis caused by the fossil fuel industry, while simultaneously denying claims related to climate change events.
Clearly, rising premiums and withdrawing coverage is not mitigating the risk or likelihood of wildfires nor is it looking out for the public. The only solution is transitioning to renewable energy sources that do not emit greenhouse gases.
Help motivate this reality by telling your local governments and town mayors you want them to commit to green development. In the U.S.? You can tell your state legislators to invest in renewable energy with just a click.
These community actions on the local level are the first steps in taking positive climate change action. Whether it’s through engaging with elected officials and town mayors on renewables or signing EARTHDAY.ORG’s Renewable Energy Campaign petition, we can help to protect our communities. EARTHDAY.ORG advocates for this vision, designating the global Earth Day theme for 2025 as Our Power, Our Planet, with the goal of tripling the global generation of clean electricity by 2030.
Plus everyone is invited to organize their very own Earth Action Day by engaging with your local elected officials, and town mayors, on renewable energy. Join the EARTHDAY.ORG movement and get involved!
