The wildfires that set Los Angeles ablaze in January have caused more than $250 billion in damages, according to AccuWeather, and the other side of the world could feel the impacts.
What's happening?
As the Australian Broadcasting Corporation detailed, the L.A. wildfires could be one of the "costliest disasters" in United States history. Many Californians already had their homeowners insurance policies canceled prior to the fires, but insurance payouts could still surpass $20 billion.
Paula Jarzabkowski, a professor of strategic management at the University of Queensland, told the ABC that global insurance premiums could also go up in the wake of the devastation.
"California will certainly make sure they don't go down, and may make them go up more," Professor Jarzabkowski said, explaining that "insurance is basically a big pooling mechanism," with costs going up to cover other losses.
Why is this concerning?
According to the report, the Actuaries Institute found that 15% of Australian households suffer "extreme insurance stress" as they pay premiums exceeding one month's gross annual income.
"We need to assume that there are more who are also underinsured or not insured at all in Australia because premiums have gone up so much, and due to cost of living, they simply can't afford insurance," Professor Jarzabkowski said, highlighting a significant roadblock to community recovery efforts after natural disasters.
Unless something changes, it's unlikely that relief will be on the horizon. Citing data from the Insurance Council of Australia (ICA), the ABC reported that annual global insurance losses surpassed $100 billion in six out of the last seven years. As a result, the reinsurance market (which covers disasters) has seen its prices soar to 20-year highs.
What can be done about rising insurance premiums?
The ICA lists storms, floods, cyclones, and bushfires as key threats to Australians, but there are initiatives to reduce premiums for people in high-risk areas.
For instance, the federal government launched a $10 billion cyclone and flood reinsurance pool in 2022 to aid households and businesses in Northern Australia, per the ABC. The country also has plans to boost climate resilience by investing in fire-resistant structures.
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Definitely 👍 However, Alix Pearce, the ICA's general manager of climate, social policy, and international engagement, told the ABC that Australia needs long-term mitigation techniques, as warming global temperatures have supercharged our weather, leading to an uptick in costly disasters.
"If we don't implement policies to mitigate this risk, we will continue to see a widening of the insurance protection gap," Pearce said, suggesting that government policies should steer people away from disaster-prone areas.
While that plan might work in some regions, it could have its pitfalls on a global scale. The Zurich Insurance Group estimates that extreme weather, rising temperatures, and damaged ecosystems could create 1.2 billion climate refugees by 2050.
Fortunately, we know why the Earth is unnaturally overheating. As NASA explains, the scientific consensus is that dirty fuels like gas, oil, and coal are the primary cause of planetary warming. So, eliminating or reducing pollution from these sources can help bring the climate back into balance.
Even though transitioning to renewable energy will take time — and savvy infrastructure planning — the world has increased its capacity for non-polluting power. You can help contribute to a cooler future by signing up for community solar or making your dwelling more energy efficient, including by upgrading to LED light bulbs and smart lighting systems.
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