As climate change threatens California, officials seek ‘sustainable insurance’

The town of Pacifica, just south of San Francisco, is ground zero for the issue of coastal erosion.
The town of Pacifica, just south of San Francisco, is ground zero for the issue of coastal erosion.
( Carolyn Cole/Los Angeles Times)

California regulators are teaming up with the United Nations to develop “sustainable insurance” guidelines that would help address climate-change-related disasters such as coastal flooding and larger wildfires — the first such partnership of its kind between the international organization and a U.S. state, officials announced Tuesday.

After a roundtable discussion at UCLA with lawmakers, state Insurance Commissioner Ricardo Lara announced that his agency would work with officials from the U.N. Principles for Sustainable Insurance Initiative over the next year to develop a plan to confront California’s climate risks, which are manifold.

Scientists contend that climate change is helping to fuel larger and more destructive wildfires, although they cannot say global warming is the cause of any specific blaze. Similarly, researchers say a warming planet may cause sea levels to surge more than 9 feet by the end of this century.


“We have a historic opportunity to utilize insurance markets to protect Californians from the threat of climate change, including rising sea levels, extreme heat and wildfires,” Lara said in a statement. “Working with the United Nations, we can keep California at the forefront of reducing risks while promoting sustainable investments.”

The Camp fire in Northern California was the costliest single natural disaster in the world for insurers last year, resulting in $12.5 billion in covered losses, and was the most destructive wildfire ever, according to the German reinsurance firm Munich Re. It was also the deadliest, killing 85 people.

In the wake of the last two years of wildfires, Californians have seen insurance companies flee the wildland-urban interface market where so much of the destruction has been centered. Where companies do remain, fire insurance rates have often jumped.

“We’re not just talking fire, but sea level rise, coastal erosion, things like that,” said state Sen. Nancy Skinner (D-Berkeley). “If we want to create a condition where the insurance industry wants to stay, we have to be able to show that we’re making these changes.”

At the same time, California’s utilities are looking for their consumers to shoulder millions of dollars in grid-hardening costs while Gov. Gavin Newsom has approved a $21-billion fund to help those utilities cover the costs of wildfire damage. Half of that fund will be covered by utilities, the other half by their customers.

“A sustainable insurance road map will enable California to harness risk reduction measures, insurance solutions and investments by the insurance industry in order to build safer, disaster-resilient communities, and accelerate the transition to a low-carbon, sustainable economy,” said Butch Bacani, the leader of the U.N. initiative.


The Principles for Sustainable Insurance Initiative was launched in 2012 at the U.N. Conference on Sustainable Development to “serve as a global framework for the insurance industry to address environmental, social and governance risks and opportunities,” according to its website.

Lara’s office said the partners plan on working with insurers, reinsurers, public policy leaders, environmental nongovernment organizations, researchers and risk management experts to address climate change issues. The state is the largest insurance market in the nation and one of the biggest in the world.

“Climate change is the third rail in some parts of the country and here in California we’re more clear eyed about what some of those risk are,” said Sean Hecht, an environmental law professor at UCLA. “If we have insurers that are taking those risks into account, we might be able to better prevent the next catastrophic wildfire from destroying a community.”