Prof. Daniel Schwarcz Interviewed by Star Tribune About Ways to Answer How Climate Catastrophes Can Influence the Home Insurance Market

Professor Daniel Schwarcz was interviewed by the Star Tribune about increasing insurance rates, especially in light of the devastating Los Angeles wildfires. With the wildfires poised to become the country’s most expensive natural disaster on record costing an estimated tens of billions for insured losses alone, insurance experts are worried about the toll of a changing climate on an unstable industry built on pricing risk — and the potential consumer fallout. While risk is the chief factor that governs home insurance bills, and states regulate the industry to ensure fairness in pricing and coverage, some researchers are pointing to a growing gap between risk and insurance rates as leaders in high-risk regions face intense political pressure to keep rates low at all costs. But Prof. Schwarcz said there are different ways to answer how high-dollar climate catastrophes can influence the home insurance market across state borders. He said that regulatory pressures in some states create distortions such as artificially low rates in California and Florida, that may encourage insurers to seek compensation in states more forgiving of increases with recent evidence has supported that position. Another factor is that an unprecedented event — like the wildfires — broadly changes risk calculation for that eventuality, causing prices to rise more broadly. As the market continues to grow more “dysfunctional,” Prof. Schwarcz believes the federal government should take a more active role in regulating property insurance.