The world is getting riskier. Americans don’t want to pay for it.

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Subscribe to enjoy similar stories. Insurance is one of finance’s great gifts to mankind. Through the statistical magic of risk pooling, an individual can obtain peace of mind and protection against devastating loss.

This remarkable invention shows signs of breaking down. As risks from illness and old age to natural and financial disaster grow, so does Americans’ resistance to paying to insure against them. The latest example is California.

Earlier this month, JPMorgan estimated the fires around Los Angeles had inflicted $50 billion in losses, of which only $20 billion were insured. One reason for the gap: State regulators have prevented insurers from charging premiums commensurate with rising property values, construction costs and wildfire risk exacerbated by a warming climate. Many thus stopped renewing policies.

Hundreds of thousands of homeowners shifted to California’s state-run backstop, the Fair Plan, whose exposure has tripled since 2020 to $458 billion. It has only $2.5 billion in reinsurance and $200 million in cash. If the Fair Plan runs out of money, it can impose an assessment on private insurers to be partly passed on to all policyholders.

In other words, the costs of the disaster will be socialized. California is a microcosm of what happens when insurance breaks down: Either households face potential ruin or the public is handed a financial time bomb. “What we are seeing is a real disconnect," said Carolyn Kousky, an economist specializing in risk and founder of the nonprofit Insurance For Good.