LA fires spotlight the home insurance industry amid climate change

Wildfires burning out of control across the Los Angeles area have destroyed more than 2,000 homes, officials said, leaving a path of rubble dotted with chimneys and the husks of burnt-out cars. Tens of thousands of people have been forced from their homes.

At least five people are believed to be dead -- with the LA County sheriff saying he expects that number to rise.

While reckoning with the calamity, some homeowners are likely taking the first step in a disaster recovery process that has become increasingly common as climate change has heightened the frequency and severity of extreme weather events: filing an insurance claim.

A rise in high-cost natural disasters has strained insurers and helped send home insurance premiums nationwide soaring, experts told ABC News. Plus, a recent bout of acute inflation has made homebuilding and repairs more expensive, they noted, exacerbating the cost crunch for insurers.

Ballooning expenses for insurers and homeowners alike are most pronounced in disaster-prone areas like California and Florida, they added, but climate change has helped fuel premium hikes in many states. The trend threatens to upend the home insurance business and put homeownership out of reach for many, some experts said.

“Insurance companies are looking out the window just like us, and seeing all these climate disasters. It’s having big effects on the industry,” Ben Collier, a professor at Temple University who studies climate risk and home insurance.

In 2023, the nationwide average premium for owner-occupied homeowners insurance climbed about 11%, rising three times more than the overall inflation rate, S&P Global found in January 2024.

The average home insurance price jumped a staggering 43% in Florida from January 2018 to December 2023, S&P Global said. Premiums climbed roughly the same amount in California over that period.

Average prices nationwide also far outpaced inflation, jumping 33% over that five-year stretch ending in 2023, the study showed.

Industry unrest roiling the insurance market in California demonstrates the role climate change has played in skyrocketing premiums and struggling insurers, some experts said.

Over recent years, many insurers have reduced coverage or stopped offering it altogether in California as wildfire risks have grown. With more frequent and intense wildfires, insurers face the prospect of more claims and higher costs.

While wildfires are a natural and necessary part of Earth's cycle, climate change and other more direct human influences have increased their likelihood. Climate change is making naturally occurring events more intense and more frequent, research shows.

“Insurance companies have seen a significant number of these events over the last five or 10 years,” Firas Saleh, director of wildfire models for North America at Moody’s, told ABC News.

The reduction of coverage in California owes in part to state regulations that limit the amount insurers can charge homeowners as part of an effort to protect consumers, Ishita Sen, a professor of finance at Harvard Business School who studies home insurance rates, told ABC News.

New rules set to take effect at the end of January would loosen some of the state’s restrictions, allowing insurers to incorporate reinsurance premiums into their prices. The move will allow insurers to charge homeowners higher premiums and ease some of the cost burden, Sen said.

However, rising prices leave customers less likely to purchase strong plans with ample benefits in the event of a disaster and put homeownership altogether out of reach for some potential buyers, Sen added.

“It’s a difficult balancing act for regulators,” Sen said.

A similar market dynamic plays out in other states as insurers reckon with more frequent weather events and higher costs, consumers struggle to afford premium hikes and state regulators weigh competing interests, some experts said.

“The challenges for insurers are certainly broader than a coastal-state problem,” Collier said. “People are experiencing increases in their insurance costs in many states.”

While risks vary from state to state, the overall challenge for homeowners and insurers will persist over the coming years, Collier said.

“If you look toward the future, we’ll continue to have these terrible risks, unfortunately,” Collier added.

ABC News' Alexis Christoforous, Matthew Glasser, Julia Jacobo, Riley Hoffman, David Brennan, Kevin Shalvey, Nadine El-Bawab and Meredith Deliso contributed to this report.