LA Fires, Climate Change And The Coming Collapse Of Insurance

1/22/2025 2:02:50 AM

(MENAFN- Asia Times) The devastating wildfires in Los Angeles have made one threat very clear: Climate change is undermining the insurance systems American homeowners rely on to protect themselves from catastrophes. This breakdown is starting to become painfully clear as families and communities struggle to rebuild .

But another threat remains less recognized: This collapse could pose a threat to the stability of financial markets well beyond the scope of the fires.

It's been widely accepted for more than a decade that humanity has three choices when it comes to responding to climate risks: adapt, abate or suffer. As an expert in economics and the environment , I know that some degree of suffering is inevitable - after all, humans have already raised the average global temperature by 1.6 degrees Celsius , or 2.9 degrees Fahrenheit. That's why it's so important to have functioning insurance markets.

While insurance companies are often cast as villains, when the system works well, insurers play an important role in improving social welfare . When an insurer sets premiums that accurately reflect and communicate risk - what economists call“actuarially fair insurance” - that helps people share risk efficiently, leaving every individual safer and society better off.

But the scale and intensity of the Southern California fires - linked in part to climate change, including record-high global temperatures in 2023 and again in 2024 - has brought a big problem into focus: In a world impacted by increasing climate risk, traditional insurance models no longer apply.

MENAFN22012025000159011032ID1109116031

Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.