The recent wildfires in Los Angeles, which killed at least 27 people and caused an estimated $275 billion in damage, highlight the growing financial toll of climate change. However, rather than mitigating risk, the insurance industry could be playing a role in worsening the crisis, a report from The New Statesman suggests.
As wildfires have become more frequent and severe, major insurers have withdrawn from the market, leaving homeowners with fewer options. California’s insurer of last resort, the California Fair Access to Insurance Requirements (FAIR) Plan, was established in 1968 to provide coverage for properties deemed too risky by standard insurers.
Between 2020 and 2024, the number of policies under the FAIR Plan more than doubled, according to climate journalist Christopher Flavelle. However, the plan is now struggling to cover claims, leading to a proposed $1 billion bailout, funded through higher premiums and insurer contributions.
The financial strain is likely to push more insurers out of the state, creating a cycle where increasing risks make coverage more expensive and less accessible.
This problem extends beyond California, the report said. Since 2017, insured losses from natural catastrophes have averaged more than $110 billion per year - double the losses recorded in the previous five years.
The insurance sector’s reliance on historical data has left it unprepared for the accelerating impacts of climate change, it was suggested. As insurers reprice risk, premiums rise, widening the insurance gap and leaving businesses and households without protection.
In Europe, only 23% of potential weather-related losses are currently insured, according to the European Insurance and Occupational Pensions Authority. The growing cost of insurance is making activities such as homeownership, infrastructure development, and agriculture more difficult, disrupting economic stability.
At the same time, insurers and reinsurers continue to underwrite fossil fuel projects, financing the expansion of industries that contribute to climate change. Some firms, including Allianz, Aviva, and Swiss Re, have adopted climate policies aimed at limiting their involvement in fossil fuel extraction. However, others remain heavily invested in the sector, ensuring that oil, gas, and coal projects continue to receive coverage, according to the report.
Lloyd’s of London, the world’s largest insurance marketplace, covers around 9% of the global fossil fuel insurance market. While acknowledging that insuring carbon-intensive industries will become unsustainable, Lloyd’s claims it does not control underwriting decisions, as they are made by its managing agents.
Of the 51 managing agents at Lloyd’s, only 15 have committed to stop underwriting new coal mines and power plants. The remaining 46, representing nearly 93% of fossil fuel project insurance, continue to support new oil and gas developments.
Lloyd’s maintained that it cannot dictate the actions of its members, yet it has the authority to issue byelaws influencing underwriting policies. The organisation operates under the Lloyd’s Act 1871 and subsequent legislation, giving it regulatory powers. Despite this, it has avoided intervention, stating that its climate targets depend on government policies guiding the transition to a low-carbon economy.
Meanwhile, the UK government has sent mixed signals on fossil fuel policy. In 2023, it approved the Rosebank oil field, which later faced legal challenges. Labour leader Keir Starmer has also stated that oil and gas will remain part of the energy mix for decades.
The current government, however, was elected on a pledge to require financial institutions and FTSE 100 companies to develop transition plans aligned with the Paris Agreement’s 1.5°C target. Strengthening these requirements through legislation could compel insurers to align their underwriting policies with climate goals, the report said.
Given the UK’s role in the global insurance market, policymakers have an opportunity to push for change. Without intervention, the industry will remain a driver of climate risk rather than a solution to it, it was suggested.
