Carolyn Cohn and Noor Zainab Hussain

(Reuters) – Tony Dunn and Jhan Dunn didn’t think they would move from California. They grew up together, had a happy life, and were planning to retire.

Three years ago, a wildfire destroyed their Northern California home in Paradise.

Dunn, a former planning specialist and retired planner, said that the couple “basically got priced out” of California. He spoke to Reuters via their new North Carolina home.

Many homeowners and businesses across California, Australia, are in the same situation. The insurance industry is known for being able to cover everything from Bruce Springsteen’s vocal chords or alien abductions. However, it has difficulty factoring climate change into its policies.

Experts in the industry say that this tried and true method which relies on decades-worth of historical data to forecast future claims is inadequate when weather patterns change, making it more difficult for hurricanes and floods and other extreme events to occur. The British host of the U.N. Climate Conference in Glasgow admitted Wednesday that the current climate mitigation pledges were inadequate to prevent climate disaster.

Aon Insurance (NYSE) reported that last week’s floods in Germany, China and other parts of the world caused unprecedented insured losses.

Attila Tonth, CEO of Zesty.ai specialists in risk analysis and insurance says “Insurers are moving out because no one wants to be involved with losing money.” They are worried about losing their money if they do not trust traditional models.

Zesty.ai has customers such as Farmers Insurance and Berkshire Hathaway (NYSE :). Aon uses artificial intelligence to calculate climate risk scores for each property based on data from more than 1,400 wildfires.

Willis Re, the reinsurance broker, is also using data provided by AI firm Cloud To Street to price flood insurance.

According to insurance statistics, there is a dire need for this innovation.

Chaucer of Lloyd’s of London, an insurer, says that the U.S. has seen an increase in large wildfires by about 30% over the last fifteen years. This is almost a fifth of the number recorded during the five most recent years.

According to Swiss Re’s (OTC) data, the insured loss for “secondary” perils like floods or wildfires, rather than those more closely modelled, nearly doubled in the last decade.

Reinsurers expect no slowdown. They predict a 30-63% increase in insured loss for all kinds of natural disasters in advanced market countries by 2040. The chances of those rising between 90 and 120% could be even higher in China, Britain France Germany and France.

According to Bruce Carnegie Brown, Chairman of Lloyd’s of London, traditional models are not able to keep up with the pace of change given their momentum, Reuters was told by him.

“If you’ve reached an exponential part of the curve where suddenly, something’s accelerating, it’s almost certain that we are underpricing the risk that we’re taking.”

EXPERIENCE THE HEAT

Already, policyholders feel the heat as coverage becomes more expensive or less available.

Broker Marsh predicts that U.S. property-insurance rates will rise by 10% over the next quarter.

According to the most recent state data, California’s Insurance Department showed that non-renewals for homeowners’ policies increased 31% by 2019 compared with a year ago, reaching more than 235,000. Carmen Balber is the executive director at Consumer Watchdog LA.

The Insurance Bureau of Canada posted a warning on their website that homeowners may not be eligible to purchase a new policy after a house fire.

There are several household names, including Liberty Mutual and Nationwide that have pulled back in California from home insurance. Liberty Mutual stated that it was difficult but essential to decrease overall wildfire exposure. This sentiment is shared by many other insurance companies.

Insurers may help clients be more resilient to decrease their risk. According to Renaud Guie, chief risk officer at AXA Commercial Insurance, the company offers a consultancy service that helps clients like manufacturers identify their weaknesses and suggest remedies such as flood barriers.

This is a real alignment of interests.

U.S. insurer Chubb (NYSE:) is also working with clients to help them make their infrastructure sturdier, said Paul J Krump, Vice Chairman, Chubb Group, Global Underwriting and Claims.

Analysts say that reinsurers have an important role in adapting to climate change because of their international reach and history of covering catastrophe risks.

Munich Re chief climate and geologist Ernst Rauch stated that his group has the ability and willingness to confront climate risk.

Rauch stated that the 141-year old company established a team in 1970 to study climate change and natural disasters. Rauch noted that they noticed a shift in weather-related events’ loss patterns.

We observed an increase in losses over the past 35 years. “And that’s reflected on our models,” said he.

There was however a significant gap in the amount that insurers would pay and the fair premium that the reinsurer thought to be a reasonable price.

Rauch stated, “We cannot transfer this risk to our balance sheet unless we receive the premium that we need to cover those risks, based upon our own assessment.”

Ratings agency S&P Global (NYSE:) warned even reinsurers could be underestimating their exposure to climate risk by as much as 50%, describing their efforts to account for climate change as “nascent” in a recent report.

Experts also believe that disasters like hurricanes in Florida, with their long track record of severe destruction, are better modelled than flooding or wildfires which, in recent years, have started to cause significant losses.

Reinsurers and risk-modeling firms, such as RMS/KCC, need to be open-minded about how they approach natural disasters.

Scenario modelling is one such method. Insurers are given a variety of climate effects on their portfolios over time to account for “the whole range uncertainty,” Laurent Marescot (senior director, EMEA, CIS at RMS), which sells its models to insurance companies.

Marescot explained that machine learning is another option. This can be used to map floods across the globe using existing models, Marescot stated.

However, any advancements in insurance accessibility and affordability will be too late for Dunns.

Tony Dunn expressed sadness that they had spent their entire lives together in California. He said, “It’s sad because we both grew to be San Diego-based people.” “I have never intended to leave California,” Dunn stated.