Burned Out: Privatised Risk Is Failing Victims Of Climate Disasters

Dramatic scenes of wildfires around Los Angeles, with entire neighborhoods burned to the ground, dominated global media for weeks earlier this year.

In the immediate aftermath of the fires, the hotel industry, automakers, national and multinational corporations, and state agencies announced support for the affected communities.

Yet, now that media attention has faded, the affected homeowners are stuck in a “Ring Around the Rosie game of bureaucracy” between insurance companies, state agencies, and the Federal Emergency Management Agency (FEMA).

The tendency among various agencies and actors to pass the buck is a symptom of the failure to reassess the relationship between public and private responses to the climate crisis. The author’s recently published book shows how the climate crisis demands a rethinking of the fundamental precepts of modernity, including the larger-than-life role played by private property and capitalism.

As another potentially devastating fire season looms over the US west and across the world, lessons from LA—where local, state, and federal policymakers got it wrong—can help improve responses to climate-related disasters.

Climate change has upended housing insurance markets in California and globally. Most policy solutions aim to steer individuals toward incorporating climate risks in home purchasing and ownership decisions — developments that privatise the risks of climate change.

For example, some state laws in the US require disclosing a home’s flood history or wildfire risks to potential buyers or making insurance policies conditional on homeowners taking specific risk reduction measures, such as raising a home’s mechanical systems above the base flood elevation, creating five-foot ember-resistant zones around homes or clearing fire-fueling vegetation from around a house.

Embedded in such policies is the argument that internalising the risks related to climate change impacts will incentivise buyers and owners to support measures for addressing the climate crisis. Thus, the Federal National Mortgage Association (also known as Fannie Mae), which backs more than 40 percent of all residential mortgages in the US, seeks to incorporate climate change risk into its mortgage underwriting.

But privatising climate risks may backfire as people may resent bearing the costs of the collective failure to address the climate crisis. And privatising these risks spells trouble for public entities.

First, privatising climate risk may make it difficult for a large majority of Americans to gain or retain home ownership. Some analysts suggest that one in ten properties insured by the US’s National Flood Insurance Program (NFIP) will eventually require a rate hike of at least 300 percent. Flood insurance in the worst-affected areas in Florida and Louisiana could increase so dramatically for some properties that they “effectively become worthless“.

Second, privatising responses to climate risks—either through policy or the uncoordinated actions of individuals and households—may also affect public responses to climate-related disasters. In the wake of the LA fires, the wealthiest households hired concierge firefighting services to protect their properties while the rapidly moving wildfires scorched entire neighborhoods around them.

Such measures can interfere with public responses to wildfires, as these private responses are often not part of the streamlined chain of command between state, county, and local firefighters.

Third, privatising risk is unlikely to address the systemic effects of the climate crisis. For example, one of the most important, and often neglected, questions is the role that property taxes play in the provision of services by local governments.

Raising alarm over wildfire or flood-related risks could bring down property prices and, in turn, reduce property taxes, which local governments rely on for providing public education, firefighting, and other vital services. At the same time, the worsening climate crisis imposes new costs on local governments.

Despite support from state and federal agencies, local governments are left to bear significant portions of post-disaster costs, including cleaning up and rebuilding public infrastructure, such as roads, bridges, power lines, streetlights, and sewage systems. An early estimate suggested that wildfires in Pacific Palisades and parts of Los Angeles in January 2025 damaged or destroyed about US$350 million in public infrastructure. This estimate did not include the damage from the Eaton fire, which burned in Altadena and Pasadena.

As a result of these pressures, privatisation of climate risks presents formidable challenges that local governments cannot resolve on their own. Private insurers, whose business model gave rise to the controversial concierge firefighting services, cannot address these problems on their own.

The scale of the climate crisis upends the long-established principles of risk pooling that are central to the insurance market. Random distribution of risks across space, time, and policyholders is crucial for the viability of insurance providers’ business models and keeping insurance premiums affordable. A significant spike in the frequency and scope of climate change-related disasters, such as wildfires, goes against the assumption of risk pooling, making the worst-affected states or regions uninsurable.

The need to address these gaps has become more salient in the context of the proposals for “managed retreat” from areas that the climate crisis is likely to render uninhabitable.

Long-term solutions to these challenges require a fundamental restructuring of the state, society, and the economy, such as reducing the dependence of local governments on property taxes. These increasingly unavoidable transformative changes can be realized only under a broad-based public mandate for managing risks and protecting the most vulnerable groups.

Public deliberations about the links between private interests and public policies and institutions will be crucial for adapting to a climate-changed world.