Out-of-control wind-driven wildfires in the Los Angeles area could not come at a more dangerous time for California homeowners as officials try to rebuild what they acknowledge is a deepening “insurance crisis.” It was impossible.
“Everyone thought 2025 would be the year that insurers regained their appetite for the California market, and then all of a sudden this disaster hits,” said Amy Buck, executive director of United Policyholders. It’s really unfortunate,” he said. A nonprofit consumer organization based in California.
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“Until this disaster happened, we thought we might be turning a corner,” she said.
Last month, the state Department of Insurance issued new regulations aimed at changing the course of some large insurance companies refusing to accept new customers or deciding not to renew current policies in California. did. Under the rule, insurers are allowed to pass on reinsurance costs to consumers, but the amount must not exceed industry standards.
Reinsurance is the protection that insurance companies obtain to protect themselves from catastrophic claims events.
The Department of Insurance said California was the only state that did not allow cost-shifting.
In return, insurance companies operating in the state will once again be required to provide coverage in fire-prone areas at a specified amount. Another rule finalized last month allows insurers to include catastrophe models in their premiums, provided they increase coverage in underserved areas of the state.
“Californians deserve a reliable insurance market that does not back away from the areas most vulnerable to wildfires and climate change,” Insurance Commissioner Ricardo Lara said in an earlier statement. “This is a historic moment for California.”
But the measure drew scrutiny from consumer advocates who fear it will only lead to sharp increases in insurance premiums.
Lara’s office did not immediately respond to a request for comment Wednesday in the wake of recent wildfires.
The ongoing Palisades Fire is expected to be one of the most expensive fires in the state. Fire officials said Wednesday that more than 11,800 acres had burned and 1,000 structures were destroyed. Meanwhile, a JPMorgan Insurance analysis estimates that insured losses due to fire alone could reach $10 billion. At least four other major fires have occurred.
JPMorgan analysts note that the Palisades fire area is “an affluent residential area with a median home price of more than $3 million.”
Bach said California homeowners can pay anywhere from $1,000 to more than $40,000 a year to insure their property.
There is no law requiring property owners in the state to carry insurance, but those with mortgages are required to carry insurance. However, general liability insurance policies typically do not cover losses from disasters such as earthquakes, floods, and landslides. It is necessary to take out separate insurance in preparation for such disasters.
The concern, Bach said, is not whether the insurance company will pay damages, but rather how much the damages will be and how long they will take.
“For people who lost their homes to these wildfires, there’s going to be a fight over coverage,” she says.
However, that is only if you have insurance.
In the affluent Pacific Palisades area, which was hit hard by wildfires, some homeowners were blindsided in March when State Farm announced it would stop renewing insurance.
State Farm, California’s largest home insurer, said its decision was “not made lightly.” It blamed costs related to inflation, catastrophe exposure, reinsurance and regulation on the need to protect the “bottom line.”
Wildfire damage in particular has led to tens of billions of dollars worth of insured property losses in California over the past decade, and will continue to grow as climate change brings warmer temperatures, longer wildfire seasons, and more severe drought conditions. It’s getting more intense.
In a non-renewal letter provided to the state, State Farm said 30,000 laid-off property and casualty policyholders across California are experiencing “fires associated with the most severe wildfire and earthquake hazards.” He said he lives in an area that is considered a The Westside area of Los Angeles was hardest hit by the company’s decision, which took effect last summer. More than 1,600 policies were not renewed in Pacific Palisades.
State Farm had already announced in 2023 that it would no longer offer home insurance to new customers in California, in part because of the catastrophe. Allstate, California’s sixth-largest home insurance company, also announced in the same year that it would stop accepting new policies in the state.
Asked about compensating homeowners in wildfire-affected areas, State Farm said in a statement Wednesday, “Our top priority at this time is to protect our customers, agents, and employees affected by the fires. “It’s about the safety of our staff and assisting our customers during the fire.” This tragedy. ”
California has an insurance program based on the Fair Access to Insurance Requirements Plan, established in the 1960s, to provide fire insurance to high-risk properties. Coverage is basic and funded by the insurance company.
Although it serves as a last resort for homeowners, its use has skyrocketed in recent years, with approximately 154,500 home insurance policies in September 2019 and 40 in June 2019. The number of cases has reached more than 8,400, and state officials say they are at unintended high risk.
But there were faint signs that some insurers were trying to fill the gap in the market. On Tuesday, independent California home insurer Mercury Insurance announced new homeowners insurance policies in the town of Paradise, where the deadly 2018 Camp Fire, considered the deadliest wildfire in modern state history announced that they would begin production. .
Janet Lewis, chief spokeswoman for the Insurance Information Institute, which represents the insurance industry, told NBC Bay Area that the reality is that companies have no control over how far they can go in the face of devastating wildfires and rising recovery costs. He said it had to be done.
“California is the fourth largest insurance market in the world,” Lewis said. “We want to be here and we want to be a part of it, but we have to get some benefit.”
Bach said consumers could benefit if the state succeeds in encouraging insurers to return to the market and become more competitive.
But she said she feared the recent bushfires would only backfire on already nervous insurance companies.
“Home insurance is an essential product that the private market is increasingly reluctant to provide,” Bach said. “We are at a crossroads.”
