Welcome back to The Strawman, the daily climate newsletter that’s more reliable than your home insurance in Florida. Today, we’re diving into the existential crisis hitting the insurance industry: when disasters get too expensive to cover, who picks up the tab? (Hint: It’s probably you.)

The Insurance Market is Sinking (Literally)

Wildfires, floods, and hurricanes are racking up billion-dollar price tags, and insurers are getting cold feet. Last year, climate-related disasters cost the world $136bn—way above historical averages—with insurers covering about half. But in many places, they’re walking away entirely. California has seen major insurers pull out, while Florida’s “last resort” Citizens Insurance has accidentally become the state’s biggest insurer. Meanwhile, FEMA’s flood insurance program is running a $27bn deficit, even after doubling premium rates.

The problem? In high-risk areas, insurance is becoming unaffordable or simply unavailable. Homeowners are left with sky-high premiums, bare-bones government backstops, or no coverage at all. And as natural disasters get worse, the economics of private insurance are looking shakier by the day.

A New Model: Government Meets Free Market

Some countries are taking a different approach. Spain’s state-run Consorcio de Compensación de Seguros (CCS) blends private insurance with public stability. It collects a small premium on all home insurance policies, pooling funds to cover extreme risks. The result? A system that remains solvent even after billion-dollar payouts, like last year’s catastrophic floods in Valencia.

New Zealand’s Natural Hazards Insurance scheme works similarly, covering the first $300,000 of flood and storm damage before private insurers step in. The UK’s Flood Re spreads the cost of flood-prone properties across all homeowners rather than pricing the riskiest ones out. Even Florida has its own government-backed insurance program, but it lacks the national scale to be truly sustainable.

The Risk-Pooling Problem

At its core, insurance relies on risk pooling: many people pay in, so the unlucky few who experience disasters get covered. But as insurers get better at assessing risk, they also get better at avoiding it. If your house is basically a flood magnet, no private insurer wants to touch it. That’s why state-backed models are emerging—to ensure coverage exists at all.

Critics argue this could encourage risky behaviour (why worry about flood zones if the government will bail you out?). But without intervention, the alternative is leaving millions of homeowners uninsured or pricing them out completely. The challenge is striking a balance—using public funds to stabilise markets while still encouraging mitigation efforts, like fire breaks in wildfire zones or flood-resistant building codes.

The Strawman’s Takeaway

Insurance is supposed to be there for you when things go wrong. But as climate disasters get costlier, the private sector is tapping out. Governments now face a choice: step in with smarter public-private partnerships or watch more people get left out in the storm—literally.