Lara’s Last Attempt to Salvage a Climate Legacy Falls Short
By Elyse Schupak
In the seven years of Ricardo Lara’s tenure as California’s Insurance Commissioner, insurance markets in the state have faced significant strain. Despite selling himself as a climate champion, Lara has done little to mitigate the impacts climate change is having on California’s property insurance market or stand up to insurers contributing to the crisis.
California’s insurers have responded to destructive wildfires and other climate disasters by raising rates or retreating from communities. Insurer withdrawals have more than tripled the size of California’s FAIR Plan, the state’s insurer of last resort, since 2022. Following the Los Angeles wildfires last year, the California Department of Insurance granted State Farm—California’s largest property insurer—a 17% rate hike, following a 20% rate hike the year prior.
Yet insurers seem to have no plans to deal with the impacts of climate change beyond raising rates and withdrawing from communities. While these strategies can help insurers manage their own bottom lines in the short-term, leading to record profits, they do nothing to reduce climate risk in the system or promote viable insurance markets in the long run. Without strong regulation, insurance companies simply won’t have incentive to prepare for the future.
In October, the Department of Insurance published a long-term solvency proposal that, if finalized as a rule, would require California insurers to create a plan for dealing with climate-related risks. The proposal appears to be Commissioner Lara’s eleventh-hour attempt to address the impacts of climate change on California’s property insurance market. But without significant improvements to the proposal, it will not provide sufficient remedies to the current crisis.
Requiring insurers to set long-term climate risk reduction targets and disclose progress towards those targets, as the rule would require, is a necessary measure to address California’s increasingly unstable property insurance market. Currently insurers’ primary tool for managing climate risk is their reliance on one year contracts—collecting premiums year after year, then nonrenewing coverage when they deem a property or community too risky.
But as written, the proposal will not meaningfully address insurers’ climate risk or the risks that insurers create for California residents. The proposal does not limit the ability of insurers to withdraw from communities or require insurers to invest in resilience to promote continued insurability. Nor does the proposal require insurers to reduce their own contributions to climate change.
Though insurers blame climate change for their need to raise rates or withdraw from communities, they don’t apply this same logic to the rest of their business. Insurance companies continue to insure and invest in new fossil fuel projects that drive climate change and, as the Insurance Department’s own analysis confirms, increase risks to insurers. The insurers responsible for the wave of nonrenewals and withdrawals from California in 2023 and 2024 were heavily invested in fossil fuels. The 12 insurers most responsible for withdrawals from California held $113 billion of fossil fuel investments and collected $3.6 billion of underwriting income from the industry, according to Insure our Future estimates.
The threat of further withdrawals has led regulators to adopt a light touch for insurers in California and across the country, including by rubber stamping rate increases that are financially squeezing homeowners and renters. Rising property insurance costs are driving up household debt and increasing mortgage and credit card delinquencies, according to the Federal Reserve. And the rising costs and reduced availability of property insurance is undermining affordable housing development, making it more difficult to increase the supply of affordable housing and preserve existing affordable units.
While homeowners and renters buckle under the pressure of rising insurance costs, property insurers are making record profits. In 2024, the industry took in $25 billion in underwriting profit and $164 billion in investment income. Executive compensation rose in kind as C-suite executives were rewarded for rate increases, claim denials, and other anti-consumer practices. 2025 is expected to be another windfall year for the property insurance industry. S&P Global Market Intelligence estimates insurers made nearly $60 billion in underwriting profit last year.
Strengthening the proposal requires establishing science-aligned emissions reduction milestones for insurers and evaluating insurers against those targets. The proposal currently makes no mention of fossil fuels as the source of escalating climate disasters or the role of insurer underwriting and investment in supporting the industry. Climate change mitigation requires rapid economy-wide emissions reduction and insurers should not be exempt from this responsibility. The proposal must also address insurer withdrawal. Requiring insurers to mitigate their long-term climate risk exposure without guardrails on when and how insurers can leave communities stands to accelerate insurer retreat in the state.
Even with significant improvements, this proposal is only an initial step toward protecting California residents from the impacts of climate change and promoting insurance affordability. The Department should require property insurers to share in the cost of climate adaptation, funding property- and community-level resilience investments that will help keep property insurance markets viable in California. Insurers that continue to underwrite and invest in the fossil fuel projects and companies driving the climate crisis should be denied rate increases that squeeze California families. And the Department must start playing hard ball with insurers seeking to leave vulnerable communities while making large profits in other geographies or business lines. California’s next insurance commissioner must pursue climate risk reduction before further deterioration in the market puts affordable insurance entirely out of reach.