Climate Crisis: California’s Deadliest Wildfire

Yahoo Finance's series examining the impact of climate change continues this week with a look at how mounting climate related claims are forcing insurance companies to rethink their business models. Akiko Fujita joins Zack Guzman to discuss.

Video Transcript

ZACK GUZMAN: Here on Yahoo Finance, this week we are continuing our coverage into the issue of climate change, and this week we're taking a look at the way that the insurance market continues to get hit by all this, one of the costliest global years we're coming off of for climate-related insurance claims. And for more on that, I want to bring on Yahoo Finance's Akiko Fujita who has more for us. Akiko.

AKIKO FUJITA: Yeah, Zack, insurance companies have always been in the business of managing risk, but the scale of those climate-related risks and the costs associated with them are upending those traditional business models. That's especially the case in California.

BECKY NELSON: When I saw the flames, I called him. I told him, don't come this way. It was on fire.

AKIKO FUJITA: This is what's left of Becky and Lee Nelson's home--

BECKY NELSON: You'd come into the dining area, and the kitchen was up front here.

AKIKO FUJITA: --a dream home built over four decades.

LEE NELSON: A nice big closet, 8 foot by 15 foot closet.

BECKY NELSON: Yeah, my closet was cool. It was the best closet ever.

AKIKO FUJITA: Now an empty plot of land.

What did the space represent to you?

LEE NELSON: 40 years of hard work. It was really comfortable here.

AKIKO FUJITA: That all changed with the Camp Fire November 2018, the worst fire in California history. Flames that tore through this community were so fierce it devoured 95% of it in a matter of hours.

Paradise lost nearly 19,000 homes that day. 85 people were killed. Becky's sister was one of them.

BECKY NELSON: When the chaplain came to tell me about her passing in the fire, I asked about that, and I said, when did you get the call to get her? And he said 9:30 that day. And I said, and when did you get to her? And he said Saturday, three days later.

JOE EARLY: And all this was built up, like commercial things on both sides. There's a hotel over there.

AKIKO FUJITA: Lawyer Joe Early says slow insurance payouts have dragged recovery here. He's helping thousands of residents file their paperwork--

JOE EARLY: So this was our front door.

AKIKO FUJITA: --even as he looks to claim his own losses, including his home.

JOE EARLY: You have to stay involved, deeply involved. You have to look at your policy, for instance. You have to read that policy and say, wait a minute. We have coverage for this or you're not including this. You're ignoring that. How do most people do that? They've never looked at their insurance policies before. It's not easy. I mean, I'm a lawyer, and I look at that and go, what are you trying to say?

AKIKO FUJITA: Those with insurance are considered lucky. Wildfire victims are being victimized again as insurance companies begin to drop policies of those most exposed to the fire risk.

RICARDO LARA: There's no doubt that we've had a record number of filings from insurance companies who are now trying to reassess their portfolios. The fact is over the last couple years, there's been close to $25 billion in losses for the insurance industry.

We hear stories over and over again of so many Californians investing thousands of dollars in their property, and yet they still get dropped from their insurance company.

AKIKO FUJITA: Insured losses for global natural disasters topped $225 billion in 2018, one of the costliest years on record.

SEAN KEVELIGHAN: We're focusing on the four primary natural catastrophes.

AKIKO FUJITA: Sean Kevelighan with the Insurance Information Institute says insurance companies are scrambling to update their risk models amid soaring losses.

SEAN KEVELIGHAN: Lost costs have increased from the '80s over 660%. So for insurers, we've been in the business of managing risk for 300 years, so this is an increasing risk. How do we help ourselves in terms of our business and make sure we're operating our businesses right, but more so, how do we help the customer and make the customer more resilient in these increasing risks?

AKIKO FUJITA: Those risks prompted Insurance Commissioner Lara to impose a one-year moratorium in December, banning insurers from dropping customers. He's now partnering with the United Nations to develop a sustainable insurance roadmap for other governments to follow.

RICARDO LARA: Looking at what are proper investments for insurance companies to be doing to get us to our Paris Climate Accord agreement. And also, what are divestments that we want? What are underwriting guidelines? Should we be underwriting maybe coal facilities in California?

AKIKO FUJITA: Back in Paradise, few are returning to rebuild. Its population is just 1/3 of what it was with much of the town in limbo, just like Becky and Lee.

Are you planning to rebuild here?

BECKY NELSON: We haven't decided. We really didn't have enough coverage to handle all that and put our house back to where-- back in its original form. So it's a bit of a mountain to climb.

AKIKO FUJITA: Like so many issues we've been talking about related to climate, a lot of it's been complicated by what's been happening on the pandemic front, and that's the case with insurance companies as well. Lloyd's, for example, says they expect to pay out about $3 to $4.3 billion on issues related to the pandemic. But you compare that to what happened last year. Loss costs stemming $149 billion overall on the climate front. You can certainly see really pales in comparison to the kind of losses we're expecting on this issue.

ZACK GUZMAN: Yeah, and it's not just insurance there. Akiko Fujita bringing us the latest.

Be sure to watch next week when we shift from insurance to looking into the impact of the shift to working in the cloud. What costs are racking up there in terms of the environmental impact? We'll have that next week.