Ahead of today’s release of a World Weather Attribution report into the causes of the recent California wildfires, a cat modelling expert at Bayes Business School has called for a fundamental rethink of disaster insurance.

Dr Eugenia Cacciatori, reader in management at Bayes and co-author of Disaster Insurance Reimagined, says the current approach to insuring properties in disaster-prone areas is reaching breaking point.

“We are witnessing a critical paradox in wildfire insurance,” Dr Cacciatori said. “Insurance companies, driven by actuarial necessity, are implementing risk-reflective policies that effectively price out the most vulnerable communities. Meanwhile, government interventions to cap premium increases, while well-intentioned, inadvertently encourage continued development in high-risk areas.

“A misalignment between market forces and policy interventions is creating this dangerous cycle. As climate change intensifies extreme weather events, traditional insurance models are becoming increasingly untenable.”

Insurance, she added, should not be solely about transferring risk, but also needs to be part of a broader adaptation strategy, something that has been achieved in some markets.

“Our research shows that some countries, like Switzerland, have found ways to achieve these integrations. While not everyone can copy this approach wholesale, there are important lessons that can be learned,” Dr Cacciatori explained. “While even the best thought-out adaptation strategies are unlikely to be able to prevent damage from the most extreme events, we can go a long way reducing the impact."

“The California situation serves as a warning for other regions. The insurance industry and governments must collaborate to develop frameworks that not only spread risk but actively encourage adaptation to our changing climate,” she added.

Bayes’ team proposes a new approach, integrating insurance mechanisms with climate adaptation strategies, including:

• Insurance policies that incentivise climate-resilient building modifications

• Embedding an understanding of how hazards turn into losses in the definition of building standards into insurance and large-scale infrastructural or nature-based interventions

• Mechanisms that allow insurance companies to benefit from loss reductions due to any direct investments they might make into adaptation

• Improvements to understanding of how various types of climate adaptations reduce losses

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