Captain Leonard D. Wildman of the U.S. Army Signal Corps was trying to document the damage when a fireman stopped him. People in that neighborhood were firing their own houses, the fireman explained. They'd been told they wouldn't get insurance on buildings damaged by the earthquake unless those buildings were damaged by fire.

This was late April 1906. San Francisco had stopped burning, finally, after four days. Eighty percent of the city was gone. Property owners understood what insurance adjusters would spend months figuring out: whether your building cracked in the earthquake or burned in the fires that followed determined whether you could rebuild. So they made their own fires.

In boardrooms across the city, insurance executives faced arithmetic that didn't work for anyone. The scale of the crisis was staggering:

Company	Reserves	Claims	Outcome
Hartford Fire Insurance	$7 million	$11 million	Paid in full
Fireman's Fund	$7 million	$11.5 million	Paid half cash, half stock; bankruptcy
Industry total	—	$235 million	At least 20 companies bankrupted

Most policies excluded earthquake damage but covered fire. The city had burned for four days after shaking for less than a minute.

Someone had to choose. Pay claims and face bankruptcy, or deny claims and watch San Francisco collapse. The companies chose to pay—the alternative was worse. Denying hundreds of thousands of claims would destroy the city's ability to rebuild and probably trigger legal challenges that would bankrupt them anyway. Hartford paid its $11 million. Fireman's Fund paid half in cash, half in new stock, then declared bankruptcy and reformed. Lloyd's of London sent a cable through underwriter Cuthbert Heath instructing his San Francisco agent to "pay all of our policyholders in full irrespective of the terms of their policies". They ultimately paid over $50 million. At least 20 companies went bankrupt trying.

Hundreds of claim adjusters looked at buildings that cracked then burned and wrote "fire damage" on forms because the alternative was telling families they had nothing. San Francisco's real estate board passed a resolution to call the disaster "the Great Fire" instead of "the Great Earthquake" because they knew language determined survival. Property owners set fires to their own damaged buildings because they understood the system better than the system understood itself.

Earthquake damage itself got excluded from policies. Fire resulting from earthquakes remained covered. When the 1994 Northridge earthquake caused $26.4 billion in insured losses, companies representing 95% of California's residential insurance market stopped offering homeowners policies.

California created the California Earthquake Authority in 1996, a state-backed entity that now provides two-thirds of California's residential earthquake coverage. But only 10-14% of California homeowners carry earthquake insurance today, down from 60% in 2000. The average policy costs $728 annually with deductibles of 5-25% of dwelling coverage. On an $800,000 home, that means $120,000 out-of-pocket before insurance pays anything.

Communities facing climate displacement see the same arithmetic. Families have what they call "good jobs" but can't afford homes on higher ground. The houses exist. The financing doesn't. Families choosing between homes they can't afford and land that's disappearing—that's uninsurable risk.

Fire and flood follow the same trajectory, and the companies aren't even pretending to pay first. The retreat accelerates:

• State Farm announced in 2024 it could drop over 1 million California policies over five years
• California's FAIR plan grew from 210,000 policies in 2020 to 610,000 by June 2025
• Florida's Citizens Property Insurance now covers 1.3 million policyholders, nearly triple in five years

The January 2025 Los Angeles wildfires exposed the arithmetic again. The California FAIR plan reported $5 billion in exposure from the fires against $377 million available to pay claims. Regulators approved a $1 billion assessment on insurers, half of which can be passed to policyholders. Families who don't live in fire zones will pay for families who do, because private markets retreated and state programs can't cover the gap.

Those 1906 insurance executives made an impossible choice with the information and pressures they actually faced. They chose to pay claims knowing it would reshape what private markets could insure, because letting San Francisco collapse would destroy them anyway. One hundred twenty years later, we're living with the template they created: when environmental risk exceeds private market capacity, insurers retreat, state-backed programs struggle to fill gaps, and millions of homeowners navigate the space between unaffordable premiums and uninsurable risk.

The families in San Francisco who fired their own buildings understood something insurance companies took decades to admit: the arithmetic of disaster doesn't care about policy language. The earth keeps moving. The fires keep burning. And families keep making impossible choices about whether they can afford to stay or afford to leave.