California wildfires weigh on insurance market: NPR

ALTADENA, Calif. — Quinn Perry visited her home this weekend for the first time since the Eaton Fire broke out. It’s just ash and rubble.

“This is our bedroom,” she says. “That’s our bed, my antique bed.” Now it’s just a blackened, distorted ruin.

Perry and his family rented the home and always had renters insurance to cover the cost of moving and replacing their belongings. That is, until last year. “We were told that no one insures renters this way, so we had no choice,” she said. Quinn, her husband Brian, and son Ellison, who don’t have insurance, are relying on FEMA and a GoFundMe page.

In recent years, insurance companies have begun using advanced computer modeling and artificial intelligence to calculate the risk of fire-prone areas. As a result, several companies have stopped developing new policies for homeowners and renters in areas such as Altadena and Pacific Palisades. “We needed to limit coverage so we could pay out in the event of a catastrophe like the one in Los Angeles,” said Janet Lewis of the Insurance Information Institute.

In addition to destroying lives and homes, the Los Angeles wildfires will have a major impact on California’s insurance market. Some estimates put the insured losses due to the fire at more than $20 billion.

California law requires insurance companies to maintain sufficient reserves to pay claims in the event of a catastrophe such as a fire. As a result, former California Insurance Commissioner Dave Jones doesn’t expect any companies to be forced into bankruptcy as a result of this event. “As we’re saying in the industry, this is going to be a revenue event for them,” said Jones, who now works at the Center for Law, Energy and Environment at the University of California, Berkeley. It means that there will be no.”

However, homeowners also have to bear the costs of fires.

Many homeowners were forced to purchase coverage from California’s FAIR plans because insurance companies stopped writing new policies in these areas. Often referred to as the insurance company of last resort, it is a state-created and industry-funded plan. Jones said so many homes in the Pacific Palisades are insured by FAIR that funds could run out. If so, the plan would impose a special assessment on home insurance policyholders across the state.

And under new regulations recently adopted in California, insurance companies can now use computer modeling risk analysis to set higher premiums that were previously not allowed. “Before these wildfires, there’s no question they were going to raise interest rates even higher,” Jones said. “These fires will allow them to demand even higher rates. ” he said.

These new regulations will also require insurers to continue writing new policies in fire-prone areas. California’s insurance commissioner last week issued a moratorium on insurance companies prohibiting them from canceling or non-renewing policies in affected areas for the next year.

Amy Buck of the consumer group United Policyholders worries that the devastating fires could set back efforts to bring insurers like Pacific Palisades and Altadena back into the market. “From a psychological perspective,” she says. “This disaster could not have come at a worse time, as insurance executives had a newfound confidence in expanding their operations in the state.”

In Altadena, it’s bad news for Perry Bennett.

He owns the building that once housed The Little Red Hen coffee shop, which is now just boards and ashes. He said: “Because of what just happened, it was very difficult to insure the Red Rooster. Even if we rebuilt it, I think it would be very, very difficult. It’s going to happen,” he said. expensive. “

Consumer advocate Bach has other concerns. Those are the people who decided to stop getting insurance coverage. “For some people, certainly low-income people who were living in inherited homes, I was told, I can’t afford it, I can’t afford it…$10,000 a year, $15,000 a year. “I can’t do it,” she says. . “Some of those people may not have insurance.”

As premiums continue to rise, Bach and others worry that more people will try to opt out of insurance.