Insurance commissioner urges companies to adjust to extreme weather
A home at the end of El Nido in La Verne, Friday, June 28, 2013, sits just south of the Angeles National Forest. Insurance companies are worried about global warming and may increase their rates for those living in high risk areas. (SGVN/Staff Photo by Sarah Reingewirtz)
PASADENA – Rather than adjust to the extreme effects of climate change, many insurance companies are simply not insuring properties in low-lying coastal zones due to the threat of flooding and are canceling policies of homeowners living near hillsides that may catch fire, said insurance and government experts Friday.
California Insurance Commissioner Dave Jones, speaking at a forum examining insurance and climate change at the Pasadena Central Library’s Wright Auditorium, urged insurance companies not to cancel policies but instead to plan for the inevitable changes to the planet and increasing damage claims as a result of climate change.
“This is the biggest and most fundamental problem we face as a people,” Jones told an audience of about 100 people. “And there is room for the insurance industry to take a leadership role as well.”
Out of 184 survey responses from insurance companies sent to the commissioner’s office, only 23 had a comprehensive climate change strategy. “That is way too low,” he said.
At stake is how insurance companies respond to huge payouts from increasingly frequent and more extreme weather events such as hurricanes, floods, tornadoes and wildfires, Jones said.
For example, when climatologist models predict more frequent and intense wildfires in Southern California due to longer periods of drought, drier conditions and extended fire seasons, some insurance companies are “pulling back” because they can’t manage the risk. “That is a real problem. If a homeowner cannot get insurance, that creates real problems and risks for them,” Jones said.
Recent statistics illustrate the problem insurance companies face.
Since the mid-1970s, the average length of the fire season in California and the western United States has increased by 78 days, said panelist Fire Chief Ken Pimlott of the California Department of Forestry and Fire Protection. “Twelve of the 20 most damaging wildfires in California occurred in the last 10 years,” he added.
Jones said the budget for CalFire increased from about $400 million a year when he was a state legislator to $1 billion a year today. So far this year, CalFire responded to more than 2,000 wildfires that burned 50,000 acres. Last year at this time, the number was 1,100 wildfires and less than half as much acreage.
Pimlott said there will never be enough engines and firefighters to put out all the wildfires in the state — not now and not in the next few decades when global warming is expected to get much worse. “We have to learn to be resilient and live with fire,” he said. He urged cooperation from cities and citizens to better prepare homes for eventual wildfires.
Also, cities must consider global warming in land use decisions, especially when weighing new developments in flood plains or near wildlands, he said. Insurance companies should help shape land-use decisions to reduce climate change’s effects and reward owners of green buildings by offering them lowered premiums.
Fireman’s Fund Insurance Co., a division of Allianz, a Munich-based conglomerate, does offer incentives to policy holders who practice conservation, but Jones said it is only one of a handful.
Steve Bushnell, senior director of Fireman’s Fund, said planning for risk is much tougher when the climate varies from historical patterns. But that’s no excuse for not planning for more extreme weather events and how to shape insurance policies.
“We are right in the cross-hairs of climate change,” he said.
In 2011, worldwide losses from natural disasters reached a record high $400 billion, That spring, insurance companies in the U.S. experienced $21.3 billion in insurance losses, the fourth highest in U.S. history, after 9/11, Hurricane Katrina in 2005 and Hurricane Andrew in August 1992.
“Parts of the world, including parts of Florida, are becoming uninsurable,” said Andrew Logan, director of oil and gas programs at Ceres, a “green” investment group that advocates for a sustainable economy. “If we don’t get our act together fairly soon, the future will be worse and the damage from climate change will grow,” he told the audience.
Besides insurance claims, climate change will hurt the broader economy. Logan said Hurricane Sandy along the New York and New Jersey coastline caused $60 billion in damage. “These physical impacts (from climate change) are a threat to large swaths of the economy,” Logan said.
State Sen. Carol Liu, D-Pasadena, who organized the event, said it is part of her effort to begin a dialogue on climate change in her district and in the state.
“It is a conversation. It is an awareness,” Liu said. “You can’t stop it but we can do something.”