Climate change has insurers pulling back in some areas

Allstate and State Farm announced that they are going to stop selling new home insurance policies in California, mainly due to the impacts of climate change. Callaway Climate Insights Founder and Editor-in-Chief David Callaway breaks down the potential economic impacts of climate change across the United States.

Video Transcript

RACHELLE AKUFFO: Well, scientists warn that extreme weather events, wildfires, floods, and storms are expected to worsen as a result of climate change. Those types of natural disasters threaten cities across the US and could take a toll on their economic prosperity.

Recently, insurance industry giants Allstate and State Farm announced they will no longer issue new policies in California saying that increasing wildfire risks make the nation's most populous state too expensive to cover.

Joining me now is David Callaway, Callaway Climate Insights founder and editor-in-chief. Thank you for joining me in this morning. So I first want to start with this uninsurable trend that we're seeing in places like California here. What does that signal, if you're a homeowner or you're a business, and you're trying to decide where you'd like your business to be, when you see some of these things now becoming uninsurable?

DAVID CALLAWAY: Well, good morning, Rachelle. And it certainly makes the markets tougher. This is a trend. Last week was a big week And. Really a watershed moment in climate finance. Because it's the time when it obscure concerns about what climate change might do in the future to it's come right home and hit everyone who owns a home or is thinking about owning a home.

State Farm is the largest insurer in California. Allstate, number four, I believe. And for them to pull out of new home loans really creates a difficult time in the market. State law doesn't require you to have insurance on your homes. But most mortgage covenants do.

People are going to be scrambling to get insurance. This is climate change coming down to the personal level to affect you and affect me. And it'll make it harder. There are backups in California. The California has what they call a FAIR Plan for insurance of last resort, which is administered by the state. It's about four times as expensive as your regular insurance plan.

So you can't overstate how important those two announcements were. They have been moving towards it for a while. Those people, neighbors of ours who live in the mountains and stuff were finding their homes were uninsurable. But now, to say across the whole state, that's big. We're seeing it in Florida. We're seeing it in Louisiana. All coastal states may see it with rising seas. And then even New York City at some point.

And so the crunch is beginning in the finance from climate change.

RACHELLE AKUFFO: And you mentioned that the three states where we tend to see this. California, Florida, Louisiana, which are usually the states that you think of when you think of the biggest exposures to climate risk, whether it's wildfires, hurricanes, or flooding. But in terms of where you're also seeing the biggest drops in home values in these coastal cities from these climate effects, what are the standouts?

DAVID CALLAWAY: Well, absolutely. Some places like in the Florida Keys and in various parts of the Bay Area here that are right on the beach. Homeowners have been told essentially by their towns and their counties, look, we're not going to be able to support you by building seawalls and building out stilts for your homes and stuff. Essentially, you're going to have to move at some point. And so that's the great climate migration we've been fearing for a long time is something we're going to start to see here. So that affects homes as well.

Now, it's crazy, though, Rachelle, people are still coming out here. They're still looking for homes on the beach. Phoenix, which has a severe water shortage and heat above 100 degrees at 100 days a summer, it's still seeing record numbers of inflows from retirees and people looking for sun.

So I'm not sure anyone's getting the message. But these types of things with insurance companies and mortgages and homeowners starts to spread the message. Next step, obviously, is that it's going to have an impact and an economic impact on the cities and counties and states. That's going to affect the municipal bonds. That's going to affect their borrowing. That's going to hit home in all the markets and ripple through the bond markets right into the stock market.

RACHELLE AKUFFO: So then when people are trying to look for more climate resilient city's, obviously, those are going to start looking a lot more attractive, where are you seeing some of this climate migration starting to go?

DAVID CALLAWAY: Well, that's a great question, Rachelle. Years ago, I was the editor of "USA Today." And I asked the staff, pretty much the whole staff. I said, I want to do a story or a series of stories on what climate change looks like in every part of the country. And I want us to find out where the safest part of the country is. Florida has its hurricanes. California wildfires and earthquakes. Freezing cold in the North. Devastating heat and in the South.

Where's the safest place? Tornadoes in Tornado Alley. And they determined this was about 10 years ago that it was Salt Lake City, Utah. No problems with earthquakes, hurricanes, wildfires, tornadoes. What we didn't realize a decade ago was that the Great Salt Lake is drying up and may not even exist in four or five years.

So even Salt Lake gets it. A lot of people now are talkin. And you see it's fashionable. I'm talking about Duluth, Minnesota. With all apologies to my relatives in Minnesota and Wisconsin, Duluth is no person's place of somewhere you want to live. It's very cold in the winter. But they're saying it's going to be a perfect paradise in 20 years with climate change. Because the winters will be warmer. The summers will be cooler. And there'll be no devastating wildfires or hurricanes.

So I think you're going to see more stories like this trying to find the Duluth's of the world, not just in the US, but everywhere as you start to see a migration. We're not seeing it yet because the economy is still fairly good historically. And climate change hasn't had that much of an impact yet. But when we start to see these insurance moves, this means the financial markets are paying attention to it. And it's beginning.

RACHELLE AKUFFO: Now, of course, when we think of environmental investing, you think of ESG investing as well. But when you think of a state like, Florida when you have Governor DeSantis, who could potentially end up being President of the United States, what do you think the future holds, then for ESG investing? And what that perhaps turning point will be for it to be taken more seriously?

DAVID CALLAWAY: Well, DeSantis' move against ESG is really a head shaker. Obviously, it's a political move. He's taking advantage of the kind of woke, anti-woke culture wars that we're seeing playing out across the country to put ESG in there because Florida is on one of the front lines of climate change.

DeSantis' record actually on environmental stuff is not that bad. It's done a lot to protect Florida's resiliency. But when it comes to talking about ESG and national attempts by essentially state pension funds, like, the Florida pension fund or Texas pension fund to hedge against the risk of climate change on their properties and on their investments in their states for their retirees. Attacking that is really shooting yourself in the foot.

Of course, the danger is if this goes national, it could become a national crisis. THE GOP is already suing in federal court to overturn a Biden law, which was brought in to essentially offset a Trump law that said you can't disregard environmental risks when investing.

So the GOP is going after this on a federal level already. DeSantis is going to use it as a club in his election campaign. And Trump really laughed off climate change. He joked about it. DeSantis is really putting himself in the position of climate denier in chief. And he's going to make it an issue in his campaign, whether it actually resonates with anybody, I don't know. But it's certainly affecting how Wall Street thinks about ESG investing.

RACHELLE AKUFFO: It's certainly worth keeping in mind. Lots of great insights there. Do appreciate you joining me this morning. David Callaway, Callaway Climate Insights founder and editor-in-chief Thank you so much.