As California reels from this year’s record wildfires, the state announced on Thursday that it would prevent insurance companies from dropping homeowners for one year in many parts of the state, a sign of the growing financial turmoil caused by climate change.
The measure, which applies to almost one-fifth of the state’s residential insurance market, prohibits companies from canceling or refusing to renew insurance policies for 2.1 million households in or near areas hit by this year’s wildfires.
The announcement reflects the increasing strain that climate change has placed on California, which had imposed a similar moratorium once before, at a smaller scale. As rising temperatures and longer droughts make wildfires more devastating, some insurers have responded to enormous financial losses by leaving fire-prone communities. That threatens the economies of those areas, because homes that can’t easily be insured are harder to sell, and nearly impossible to rebuild after a fire.
California’s struggles are a preview of the threat that climate change poses to the long-term economic health of communities around the country. Insurers have begun pulling back from fire-prone areas in other states across the West. And in communities near oceans or rivers, the increasing cost of flood insurance poses a similar risk, driving down home values and make them harder to sell.
In response to growing climate risks, state officials have intervened to stop insurers from leaving high-risk areas. In December, California’s insurance commissioner, Ricardo Lara, for the first time imposed a similar one-year moratorium on insurers dropping coverage for more than 1 million policyholders in or near areas affected by wildfires.
Mr. Lara’s office declined to make him available for an interview. In a statement, he said the new policy “gives millions of Californians breathing room and hits the pause button on insurance non-renewals while we take additional steps to expand our competitive market.”
Still, the state’s ability to shield homeowners from the consequences of climate change is limited. The moratorium cannot be extended, which means that insurers who want to stop offering coverage in high-risk areas will eventually be able to do so.
Insurers have said that if the state wants them to keep doing business in those areas, officials must make it easier to allow insurance companies to charge higher premiums, reflecting what they say is the true risk from wildfires.
A bill that would have allowed insurers to take those steps, including justifying rate increases using computer models that predict future risk, failed to pass the state legislature this year after consumer groups said it would impose an unfair burden on homeowners.
In a statement, two groups that represent insurers, the American Property Casualty Insurance Association and the Personal Insurance Federation of California, did not take a position on the moratorium. The groups said that more frequent wildfires bring a higher risk of property damage, “and we need to adapt to this new reality.”
“It is important that we work together on solutions that increase insurance availability in high-fire risk areas and protect against insurer insolvency,” the statement added.
People who lose access to private insurance can still buy coverage from a high-risk state program called the Fair Access to Insurance Requirements plan. But that coverage is typically more expensive and covers fewer types of damage.
The state’s longer-term strategy involves encouraging local officials to reduce exposure and vulnerability to wildfire, through tougher building codes or rules about managing the vegetation around homes.
“If we don’t want to be in this position every year, we have to reduce the risk to lives and homes,” Mr. Lara said.
But the most promising changes tend to be restrictions on home construction in vulnerable areas. And those restrictions provoke strong pushback in California, where high housing prices have left many people struggling to find homes they can afford, creating pressure to keep building in high-risk areas.
Carolyn Kousky, executive director of the Wharton Risk Center at the University of Pennsylvania, described the new moratorium as a temporary measure that would not solve the underlying problem of growing climate risk.
“This problem’s not going to go away. That raises a lot of questions about how we’re building and where we’re building,” Dr. Kousky said. “Clearly the market needs something much beyond this.”