The financial impact of the climate crisis is becoming more apparent as insurance companies are struggling to keep up with the devastating effects of natural disasters. The largest homeowner insurance company in California, State Farm, recently decided to halt the selling of coverage to homeowners everywhere in the state, not just in wildfire zones, due to the rapidly growing catastrophe exposure. Insurance companies are raising rates, restricting coverage, or even pulling out of certain areas altogether, making it more costly for homeowners to stay in their houses. In eastern Kentucky ravaged by storms last summer, the price of flood insurance is set to quadruple, while homeowners in much of Florida are increasingly finding it challenging to buy storm coverage as most big insurers have already pulled out of the state. Additionally, Louisiana’s insurance market is in crisis, with the high cost of insurance starting to affect home prices. Private insurers are struggling to pay their claims as more people leave the market for Citizens, resulting in Citizens becoming the state’s largest insurance provider. To manage the risk faced by homeowners in high-risk areas, FEMA has begun charging rates that reflect actual flood risk. Set to be phased in over several years, the rate increase could lead to significantly higher future premiums, especially as climate change effects worsen. Policymakers need to consider buying the properties most at risk or moving residents out of dangerous communities.
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