Subtitle

What Catastrophe Teaches Us About Homeownership and Underinsurance

Document Type

Article

Publication Date

2026

Abstract

The firestorms enveloping Los Angeles in January 2025 made yet more inescapable the reality of the increasingly overwhelming impacts that climate change is having on communities. Many thousands of owner-occupied homes were destroyed. Most homes will have insurance, but many homeowners will be surprised to find themselves underinsured, meaning their insurance proceeds will be materially less than the insurer-reported, incurred cost of rebuilding their destroyed home. The human consequences on these homeowners, each of whom has lost everything in a single week, are a now sadly all too imaginable tragedy in real time.

How underinsurance happened and what could have been done about it will dominate many conversations, both legal and political, but perhaps then will fade until an even worse catastrophe event inevitably occurs somewhere else. Since the 1990s, the United States has been in an unmissable cycle of escalating fires, floods, hurricanes, and other severe weather events. Los Angeles, over time, likely will be best described merely as an example of the worst of it that happened “back then.”

Despite the history of disasters followed by homeowners faced with terrible choices, debate remains about the most basic of questions. In Los Angeles, for example, how many of these homeowners were underinsured? How badly underinsured were they? Why? Are only disaster victims likely underinsured, or does disaster just expose and exacerbate the problem? How much does disaster make underinsurance worse? Whose fault is it? What can be done about it? Are those answers idiosyncratic, or do they describe a broader—perhaps nationwide—crisis of underinsurance?

This Article analyzes the deepest and broadest data so far available to answer these questions and to address the implications of those answers. The data—obtained in response to multiple Public Information Requests to the California Department of Insurance—is aggregated from at least 98% of every fire insurance claim of an owner-occupied home anywhere in California, whether incurring minor damage or suffering complete destruction, whether caused by a catastrophe event or not, across the years 2018–2023. This data shows that there is a barely hidden nationwide crisis of underinsurance, and that without decisive action from lawmakers, we risk creating a cascade of disasters wherein the intersection of climate change and insurance persistently and inevitably robs homeowners of any chance to fully recover what they have lost.

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