A home burns as the Dixie fire jumps Highway 395...

A home burns as the Dixie fire jumps Highway 395 south of Janesville, California, Aug. 16, 2021. Two insurance industry giants have pulled out of the California marketplace, saying that wildfire risk and the soaring cost of construction prompted them to stop writing new policies in the nation's most populous state. Credit: AP/Ethan Swope

After decades of packing into areas that are increasingly disaster-prone as the planet heats up, Americans will sooner or later be forced to retreat. Insurance companies are already leading the way. We should heed the message they're sending, that insuring and inhabiting vulnerable parts of the country will just keep getting more expensive.

Allstate last week told the San Francisco Chronicle it had stopped writing new home policies in California after years of taking wildfire losses, citing an inability to raise premiums enough to cover costs. The news came just days after State Farm, California's largest insurer, announced a similar decision. Though there are still many insurers working in California, Allstate and State Farm lead a growing list of big competitors heading for the exits.

The advocacy group Consumer Watchdog demanded that state Insurance Commissioner Ricardo Lara drag State Farm back into the market, claiming he has the authority under California's Proposition 103, a 1988 measure that forces companies to get state approval for rate increases. The consumer group's founder also happens to be the author of the proposition, which was designed to keep rates low.

But strong-arming insurers to resume writing homeowners policies won't address the core problems of climate risk and artificially depressed insurance rates. Despite the constant menace of earthquakes and the high and growing threat of wildfires and floods, California has one of the lowest home-insurance rates in the country, as a percentage of median household income - less than Georgia and West Virginia, according to Bankrate data.

Of course, this statewide average elides the exorbitant cost of insuring a home in, say, fire-ravaged Paradise, or any other place within the risky wildland-urban interface. More and more, the only people who can build or rebuild in such places are those wealthy enough to afford skyrocketing premiums and fire-resistant construction materials and techniques. The result is "gentrification by fire," as the Washington Post termed it.

It's a huge problem for a state with a chronic shortage of affordable housing. And California's situation is hardly unique. Across the country, NIMBYism has made it nearly impossible to build denser housing near job centers, forcing non-affluent house-seekers to the cheaper exurban margins, where the disaster risk is highest.

People fleeing California's fires often end up in the frying pans of Arizona or Texas, which are at rising risk of drought, extreme heat and other problems that climate change is making worse. They're rushing to these places not because they're ignoring the risks but because they need jobs and shelter and have been priced out of safer places.

It's no accident that most of these places are also suffering from insurance crises, with providers either abandoning or jacking up premiums in risky areas. You can't get a mortgage in this country without insuring the house. So from California to Florida, many buyers are stuck with last-ditch state-run options. These are typically more expensive and offer less coverage than private alternatives, and their finances are precarious. More people risk having far too little coverage in the locales where they will need it the most.

Kenneth Klein, a professor at California Western School of Law in San Diego, says one possible solution would be to force insurers to offer policies covering all potential disasters, at the same price, in all parts of a state. This would truly pool risk, make coverage more affordable and protect insurers from being undercut by competitors. Such an approach could solve California's Proposition 103 problem, setting sustainable insurance rates that keep consumers and companies happy, at least for the short term.

But it wouldn't address the long-term problem of climate change making some parts of the country not just uninsurable but uninhabitable. For such areas, the only long-term solution is "managed retreat," the process of slowly moving people to safer places.

For a long time, the obvious candidates for such retreat have been some coastal communities at risk of annihilation by storms and sea-level rise. But managed retreat is already becoming necessary on dry land.

Arizona took an important step in this direction last week, curtailing development of fast-growing Phoenix exurbs that lack an adequate water supply. It's a welcome acknowledgement that climate change and perpetual misuse have left the Colorado River and groundwater reserves unable to support unlimited human settlement in such a scorched place.

A retreat from vulnerable areas that doesn't punish economically vulnerable populations, leaving them homeless, will be difficult to manage. It will require more of the realism Arizona just displayed, a government willingness to pay homeowners to move, along with some "Yes In My Backyard" thinking that the entire country will need to make affordable housing plentiful in safe areas.

The alternative is a status quo of insurers continuing to take huge losses, homeowners and governments getting stuck with billions of dollars in uncovered damage claims and harsh market judgments that hang the poor and middle class out to dry. Retreat is in our future. We still have the power to choose whether it's panicked or orderly.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Mark Gongloff is a Bloomberg Opinion editor and columnist covering climate change. A former managing editor of Fortune.com, he ran the HuffPost's business and technology coverage and was a reporter and editor for the Wall Street Journal.

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