This blog was co-authored by and Carolyn Kousky, Associate Vice President for Economics and Policy, EDF and Xuesong You, Climate Research Economist, Freddie Mac.
As wildfires burn across L.A., thousands of residents are about to face the heart-breaking, confusing, stressful, and difficult process of rebuilding after disaster. This recovery process can be incredibly costly, and the majority of Americans do not have sufficient resources to fund the recovery on their own. After losing their home, many are not in a position to take on additional debt, and federal disaster aid is often insufficient – indeed, it was never designed to make people whole after a disaster.
Unsurprisingly, then, our own research confirms that households with insurance tend to have better recoveries. In a recent paper, we document that households with insurance are less likely to report high financial burdens in both the short and long term, and they are less likely to have unmet funding needs. We also find in our work that when more households have insurance, it has positive spillovers for local economies, with visitations to local businesses increasing.
These important financial benefits are at risk when households cannot find or afford insurance. Since the devastating wildfires of 2017 and 2018–the state’s most damaging until the recent blazes–the California insurance market has been under stress, putting more residents in that position. In response, the state has recently adopted regulatory reforms that are important steps toward improving the California insurance market. But with the ever-increasing risk of climate disasters, can insurability be preserved?
We summarize the dynamics in the California insurance market that have been unfolding through six sets of graphs, providing context for the current insurance issues facing the state as recovery begins.
