THE wind-driven forest fires The out-of-control fires in the Los Angeles area could not have come at a more perilous time for California homeowners, as officials attempt to rehabilitate what they acknowledge is a deepening.insurance crisis“.
“We all thought 2025 would be the year insurers regained their appetite for the California market, but for this disaster to hit us right off the bat is truly unfortunate,” said Amy Bach, executive director of United Policyholders, a consumer group. nonprofit based in California.
“Until this latest disaster,” she said, “we thought we could turn a corner.”
The State Department of Insurance issued a new regulation last month The goal was to turn the tide in the face of some of the largest insurance companies refusing to accept new customers in California or deciding not to renew current insurance policies. Under this rule, insurance companies are allowed to pass on the cost of reinsurance to consumers, but at an amount that cannot exceed industry standards.
Reinsurance is protection that insurance companies acquire to protect against catastrophic losses.
The Department of Insurance said California is the only state that does not allow cost pass-through.
In exchange, insurers doing business in the state must once again provide coverage in fire-prone areas for a mandatory amount. Another rule finalized last month allows insurers to incorporate catastrophe modeling into their rates as long as they increase their policy offerings in underserved areas of the state.
“Californians deserve a reliable insurance market that doesn’t back down from communities most vulnerable to wildfires and climate change,” said Insurance Commissioner Ricardo Lara. said in a prevIou statement. “This is a historic moment for California.”
The measures, however, have attracted the attention of consumer rights advocates, who fear it will only lead to a sharp increase in premiums.
Lara’s office did not immediately respond Wednesday to a request for comment following the latest wildfires.
The ongoing Palisades fire is poised to become one of the costliest in the state: Fire officials said Wednesday that more than 11,800 acres have been destroyed and 1,000 structures have been burned, while a JP Morgan Insurance analysis estimates that insured losses from this fire alone could approach $10. billion. At least four other large fires also broke out.
JP Morgan analysts note that the Palisades fire area is “an affluent residential area, with a median home price” above $3 million.
Bach said California homeowners could pay anywhere from $1,000 to more than $40,000 a year to insure their properties.
Although no law requires property owners in the state to carry insurance, those with mortgages are required to carry it. However, typical property insurance policies generally do not cover damage caused by disasters such as earthquakes, floods and landslides. Separate insurance policies are necessary to protect against these types of calamities.
The concern is not whether insurance companies will pay for the damages, but rather how much and how long it will take, Bach said.
“For people who lose their homes in these wildfires, there will be struggles for coverage,” she said.
But that’s if they have insurance.
In the wealthy Pacific Palisades neighborhood ravaged by wildfires, some homeowners were caught off guard in March when State Farm announced it would stop renewing their coverage.
State Farm, California’s largest home insurer, declared his decision was not “done lightly”. It blamed costs associated with inflation, catastrophe risk, reinsurance and regulation for its need to protect “its bottom line.”
The devastation caused by forest fires in particular, which generated tens of billions of dollars in insurance property losses in California Over the past decade, the situation has only intensified as climate change leads to rising temperatures, longer fire seasons and increased drought conditions.
State Farm said in a non-renewal letter provided to the state that the 30,000 property insurance policyholders that were laid off across California lived in areas considered to be “prone to wildfires or wildfires.” greatest earthquake risks. The Westside area of Los Angeles was hit hardest by the company’s decision, which took effect last summer. In Pacific Palisades, more than 1,600 policies have not been renewed.
State Farm already had said in 2023 that it would no longer offer homeowners insurance to new customers in California, in part because of the risk of catastrophe. Allstate, California’s sixth-largest home insurer, also said that year it was discontinuing new insurance policies in the state.
Asked about its coverage for homeowners in areas affected by the wildfires, State Farm said in a statement Wednesday that its “number one priority at this time is the safety of our customers, agents and employees affected by the fires and assisting our customers amid wildfires.” this tragedy.”
California has an insurance program under the Fair Access to Insurance Requirements Plan, established in the 1960s, which provides fire insurance coverage for high-risk properties. Coverage is basic and funded by insurance companies.
Although it is a last resort for homeowners, its use has only grown in recent years, from nearly 154,500 home insurance policies in September 2019 to more than 408,400 in June, creating a high-risk exposure that state officials say was never anticipated.
But it appears that some insurance companies are ready to fill the gaps in the market. On Tuesday, Mercury Insurance, an independent California home insurer, announced it would begin writing new home insurance policies in the town of Paradise, the site of the fatal crash. Campfire in 2018, considered the worst wildfire in the state’s modern history.
Janet Ruiz, chief spokesperson for the Insurance Information Institute, which represents the insurance industry, told NBC Bay Area that the reality is that businesses must manage what they can do in the face of destructive wildfires and rising rebuilding costs.
“California is the fourth-largest insurance market in the world,” Ruiz said. “We want to be here, we want to be a part of it, but we have to make a profit.”
Bach said if the state is successful in getting insurance companies to come back into the market and become competitive, it could be beneficial for consumers.
But she fears the latest wildfires could have a reverse effect on already nervous insurers.
“Home insurance is an essential good that the private market is increasingly unwilling to provide,” Bach said. “We are at a crossroads.”
