Insurance and Climate Change: California Wildfires and the Homeowners Insurance Crisis

• In Event: 40860 - Section on Economic Sociology Roundtables
  In Refereed Roundtable (60 minute): Table 11. Finance, Credits, and Rules

Abstract

In the past decades, climate change has significantly increased the frequency and intensity of destructive wildfires in California. The catastrophic and unpredictable nature of these events is directly impacting the insurability of homes, leading several insurance companies to cease underwriting homeowners insurance in wildfire-prone areas. However, homeowners insurance serves as a crucial mechanism for mitigating losses from natural disasters, and failure to maintain one reduces property value, limits the potential for selling and relocating, and can result in mortgage foreclosure. Given the central role of homeowners insurance in the unequal allocation of the burden of natural hazards, this paper asks: what are the socioeconomic and demographic characteristics of the ZIP codes mostly affected by insurer-initiated non-renewal of homeownership policies? We combine data from the American Community Survey (ACS) with two longitudinal datasets released by the California Department of Insurance (CDI) with information on the number of new, renewed, and non-renewed insurance policies and fire risk scores between 2018 and 2021. We find that, net of controlling factors, ZIP codes with higher proportions of Black populations, Hispanic populations, and lower median incomes, experience higher proportions of insurer-initiated non-renewals, highlighting a key dimension of inequality in the vulnerability to wildfires.

Author

• Edoardo Di Vincenzo, Cornell University