I’m an economist. Here’s why I’m worried the California insurance crisis could trigger broader financial instability
(The Conversation is an independent and nonprofit source of news, analysis and commentary from academic experts.)
Gary W. Yohe, Wesleyan University
(THE CONVERSATION) The devastating wildfires in Los Angeles have made one threat very clear: Climate change is undermining the insurance systems American homeowners rely on to protect themselves from catastrophes. This breakdown is starting to become painfully clear as families and communities struggle to rebuild.
But another threat remains less recognized: This collapse could pose a threat to the stability of financial markets well beyond the scope of the fires.
It’s been widely accepted for more than a decade that humanity has three choices when it comes to responding to climate risks: adapt, abate or suffer. As an expert in economics and the environment, I know that some degree of suffering is inevitable — after all, humans have already raised the average global temperature by 1.6 degrees Celsius, or 2.9 degrees Fahrenheit. That’s why it’s so important to have functioning insurance markets.
While insurance companies are often cast...