EDITORIAL: A second alarm sounds for fire insurance market

Nov. 10--Property owners in fire-prone areas of California have something more to fret about: skyrocketing premiums for homeowners insurance -- that is, if they can keep their policy at all.

Insurers canceled 235,000 policies last year, according to figures compiled by the state Department of Insurance, bringing the statewide total to almost 600,000 since 2015.

Homeowners unable to find an insurance company willing to write a new policy are left with the FAIR plan, the state's high-cost, bare-bones insurer of last resort.

For the second consecutive year, California's chief insurance regulator called timeout.

Commissioner Ricardo Lara issued a moratorium Thursday on cancellations -- insurers prefer the more benign label "nonrenewals" -- for people living in areas affected by this year's wildfires.

The one-year moratorium covers 2.1 million homeowners statewide, including about 165,000 in Sonoma County and 48,000 in Napa County.

It's welcome relief, but there's too much at stake for California to keeping relying on stopgap measures.

Most homeowners must carry insurance as a condition of their mortgage, and it would be foolish to go without coverage even if it weren't required. Insurers, meanwhile, are struggling after three straight years of multi-billion losses attributable to California wildfires.

State lawmakers must find a way to ensure that homeowners insurance remains available and affordable without bankrupting insurers.

Having failed to deliver in their last session, lawmakers need to put the issue at the top of the agenda when they reconvene in December -- and pursue a solution in public, with input from all the stakeholders.

Insurers want to base rates on projections for future damages instead of past losses and to factor their reinsurance costs into policyholder premiums. Those would be major changes, likely to push premiums up considerably. If they're granted, they must be accompanied by protections against cancellation and, perhaps, discounts or other incentives for policyholders who take appropriate steps to harden their homes and protect their properties from fires.

Another option worth considering is adopting a model similar to the national flood insurance program, with a basic statewide policy financed by mandatory fees on all residential properties, with rates adjusted to reflect the risk of wildfire. Homeowners would have the option of purchasing additional coverage from private insurers.

There are, no doubt, other approaches that could be presented, assessed and debated by legislative committees.

The moratoriums ordered by Lara are a small Band-Aid approved by lawmakers two years ago. They are limited to one year and cannot be renewed, although about 140,000 Sonoma County homeowners will have a second year of protection because they had the misfortune of living through wildfires in 2019 and again in 2020.

The overlapping moratoriums underscore the ongoing risk of costly fires in Sonoma County and across most of the state. Even if California stopped allowing new construction in areas at high risk of wildland fires, millions of people already live there. Moreover, it would be foolhardy to expect a change in the pattern of more frequent and more intense wildfires.

The challenge for lawmakers is developing policies that balance fire risk with availability and affordability of coverage to ensure that the homeowners insurance market doesn't dry up entirely. A year ago, we said California needed solutions before the Kincade fire moratorium ran out. It's expiring, and homeowners are still waiting.

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