William Brangham:
For years, State Farm has been the largest provider of homeowners insurance in California, but it recently announced it will no longer sell new homeowners policies in the state.
It said this move was driven by the high cost of construction and the growing risks from catastrophes like wildfires. State Farm's move followed a similar one by Allstate insurance and other pullbacks from insurers like Chubb and American International Group, who decided not to renew some existing policies.
So, what does this mean for homeowners and other businesses in a state with increasing risks from wildfire and other extreme climate-driven events?
Michael Wara is a lawyer and senior fellow at the Woods Institute for the Environment at Stanford University.
Michael, thank you so much for being here.
Can you tell us a little bit more about what's driving this move by the insurance companies? I mean, they cited these two risks, the increasing risk of fires burning structures and then the increased cost of building or rebuilding those structures. What else is there?
Michael Wara, Stanford Woods Institute for the Environment: Well, I think what's driving a lot of this instability in the insurance market really has to do with the rapidly changing risk of wildfire interacting with a regulatory system which, by design, changes quite slowly and allows — in particular, allows price increases that occur very slowly.
And so we sort of have a lag. And the challenge layered on top of that has been, as everyone has experienced, increasing inflation, and, in California, particularly increasing costs for construction. So, the insurers are stuck between quickly increasing risk and slowly increasing allowed insurance pricing.
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