Welcome back to The Strawman, the daily climate newsletter that doesn’t burn out faster than California’s insurance market. Today, we’re looking at how insurers are retreating just as climate-driven catastrophes turn up the heat.

California on Fire—And Insurers Feeling the Heat

The Los Angeles wildfires in January are set to cost the global insurance industry about $40bn in claims. Companies like AIG, Travelers, and Chubb are taking billion-dollar hits despite pulling back from California’s market in recent years.

• AIG expects a $500mn loss from the fires. The company stopped offering most new policies to homeowners in 2022 and now focuses mainly on businesses and high-net-worth individuals.

• Travelers projects $1.7bn in wildfire-related losses.

• Chubb estimated its losses at $1.5bn, noting that it had already reduced its exposure in the fire-hit area by 50%.

A Market in Retreat

California’s insurance market is facing a crisis. The average homeowners’ premium has barely budged—rising just 2.6% per year between 2016 and 2023, adjusted for construction inflation. Meanwhile, construction costs and natural disasters are surging. Tight consumer protection laws limit how quickly insurers can raise rates, making it hard for them to turn a profit.

• 340,000 fewer policies were written by “admitted” insurers—those subject to state price regulations—from 2019 to 2023.

• AIG’s $500mn loss partly stems from its operations in the less-regulated “non-admitted” market, which offers more pricing flexibility.

• State Farm, California’s largest private insurer, is asking for an emergency 22% rate hike to offset its wildfire losses.

Who Pays the Bill?

The California Fair Plan, a last-resort insurance pool, will collect $1bn from private insurers doing business in the state to cover the damage. Insurers can pass half of that cost onto their customers—yet another sign of rising costs for homeowners.

Evan Greenberg, CEO of Chubb, summed it up bluntly:
“We’re not going to write insurance where we cannot achieve a reasonable risk-adjusted return.”

Translation? Fewer coverage options for homeowners in high-risk areas.

The Strawman’s Takeaway

With climate-driven disasters becoming more frequent and intense, insurance markets will continue to buckle under the pressure. Without changes to regulations—or new public-private insurance models—California may find itself in an even tougher spot, leaving residents without affordable options to protect their homes.