Consumers Who Harden Homes to Reduce Wildfire Risk Must Have a Right to Buy Insurance, Consumer Watchdog to Testify before Little Hoover Commission

PR Newswire

SACRAMENTO, Calif., March 28, 2024 /PRNewswire/ -- California must require insurance companies to sell home insurance to homeowners who protect their homes from wildfire in order to restore consumers' access to affordable coverage, Consumer Watchdog executive director Carmen Balber will testify in comments before the Little Hoover Commission today.

Mandatory coverage for homeowners who do the right thing is the only option to quickly get Californians insured again, Balber will testify.

View the livestream of the hearing here and see Consumer Watchdog's presentation.

"Appeasing the insurance industry has failed to protect consumers' access to home insurance in California," said Consumer Watchdog executive director Carmen Balber. "Any company that wants the privilege of selling home and auto insurance in the largest market in the nation should be required to cover every Californian who does the right thing and protects their home from wildfires. The added bonus will be depopulating the FAIR Plan to help stabilize the finances of the state's insurer of last resort."

A mandate would require insurance companies to sell coverage to any home or condo owner who meets state "Safer From Wildfire" mitigation guidelines - including home-hardening and defensible space measures that reduce the risk a home will burn in a wildfire. To incentivize homeowners to complete these mitigation steps they must be confident they will be able to buy insurance at the end of the process.

A recent study by the National Association of Insurance Commissioners found that "structural modifications can reduce wildfire risk up to 40%, and structural and vegetation modifications combined can reduce wildfire risk up to 75%."

Balber's presentation also makes the following points:

The home insurance industry was more profitable in California over the last two decades than it was nationwide, with 8.8% average return on net worth from 2002-2021 compared to 6.2% nationwide. California did even better in recent years, with return on net worth reaching 19.4% in 2021, compared to 1.3% on average nationally.

Rate regulation under California's strongest-in-the-nation insurance oversight law, Proposition 103, has allowed home insurance companies to get the rate hikes they need to cover legitimate cost increases. Home insurers in California received an average 92% of the premium increases they requested between 2021 and 2023 and all but one of the top ten insurance companies in the state received rate hikes in the last year, some with multiple increases.

Insurance Commissioner Lara announced a deal with insurers last September that he said would expand home insurance coverage for Californians. The only consumer benefit of the plan was a supposed "commitment" by insurers to increase insurance sales in wildfire areas. However, documents Consumer Watchdog obtained under the Public Records Act reveal that the legislation his plan is based on would not require insurers to offer comprehensive home insurance to a single new homeowner. Insurers could instead meet their commitment by offering bare-bones FAIR Plan-equivalent policies, leaving consumers no better off than they are today.

State Farm recently announced it will dump 72,000 policyholders despite a 20% rate hike of approximately $500 million that took effect this month. The move makes clear that California must do more to prevent insurance companies from abandoning consumers who have paid their premiums responsibly for decades.

The insurance industry proposals embraced by Commissioner Lara have already been tried in Florida where they failed to stabilize that state's insurance market. Insurance rates in Florida are 2-4 times as high, five times as many homeowners are insured by the state's insurer of last resort, and insurance companies continue to leave the market.

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