The insurance industry is facing unprecedented challenges as climate change intensifies the frequency and severity of extreme weather events. Traditionally, insurers relied on probability to assess risks and set premiums. However, with disasters like storms, floods, wildfires, and hurricanes becoming almost annual occurrences, the business model is under severe strain. Rising claims have led to skyrocketing premiums, making insurance unaffordable for many and forcing insurers out of high-risk markets.
California’s ongoing wildfire crisis is a stark example of this trend. Wildfires that erupted in Los Angeles County in January 2025 burned over 23,000 hectares, killed 29 people, destroyed 16,000 structures, and displaced thousands. Typically, the region’s wildfire season occurs from June to October, but this year’s fires struck during the normally rainy season. The World Resources Institute detected over 200 fire alerts during this period—far above historical averages. According to World Weather Attribution, climate change increased the likelihood of these fires by 35%.
The damage is projected to cost $250-$275 billion, with insured losses estimated at $35-$45 billion. Major insurers in California, already struggling with repeated wildfires, have been pulling out of the market or limiting new policies. From 2020 to 2022 alone, insurance companies declined to renew 2.8 million homeowner policies in the state.
California’s experience is a harbinger for the broader US, where eight of the state’s largest wildfires occurred between 2017 and 2020. The state’s efforts to curb insurance company withdrawals highlight the mounting challenges for both insurers and homeowners in a warming world.
As climate change continues to redefine risk, the insurance industry must adapt or risk collapse in the face of rising weather extremes.