New California laws aim to ease ongoing home insurance crisis

California has approved a package of new laws meant to stabilize the state’s faltering home insurance market and help property owners protect their homes from wildfires and recover when they lose everything in a blaze.

The legislation, signed by Gov. Gavin Newsom this month, is the state’s latest effort to tackle an insurance crisis that’s left thousands of homeowners facing steep rate hikes, canceled coverage and long delays securing claim payments.

Despite a recent plan to overhaul California’s strict insurance regulations in hopes of persuading carriers to expand coverage in fire-risk areas, many homeowners have yet to see any immediate changes.

While the latest laws are only incremental steps toward fixing the crisis, they aim to provide some homeowners meaningful relief. Here are three of the most potentially impactful reforms:

Fire-safe grants for homeowners

Assembly Bill 888 establishes a grant program to help low- and middle-income homeowners pay for wildfire defense measures such as installing fire-resistant roofs and clearing flammable vegetation from their properties — improvements that can cost thousands or even tens of thousands of dollars, but qualify for insurance premium discounts.

It will now be up to state lawmakers to determine how much grant money individual homeowners could receive. Cities and counties will also be able to apply for the grants for fire mitigation programs to make communities safer and potentially more insurable.

For a homeowner to be eligible for the money, their property would need to be insured by a state-approved provider and in a ZIP code that overlaps with a “high” or “very high” fire risk zone, as listed by CalFire. That includes wide swaths of most Bay Area counties.

A property owner’s earnings would need to be within the low-income limit for their county, as defined by the state housing department. That definition is broad, however. In Santa Clara County, for example, a family of four earning up to $159,550 a year would qualify as low-income and be eligible.

The bipartisan bill, authored by Assemblymember Lisa Calderon, a Democrat representing Los Angeles County, follows an executive order by Newsom earlier this year to require many homeowners to create a 5-foot “ember-resistant” zone around their houses. Newsom ordered state officials to finalize the “Zone Zero” rules by the end of the year.

Higher minimum payout for wildfire claims

When a home is completely destroyed in a blaze, insurers will soon be required to pay out at least 60% of an owner’s personal property coverage limit — up to $350,000 — even before receiving a complete list of destroyed household items such as appliances, electronics and jewelry.

Previously, insurers only had to advance 30% of coverage, capped at $250,000. Senate Bill 495, authored by Sen. Ben Allen, a Democrat from Los Angeles, will go into effect next year.

Allen introduced the bill after learning about the struggles some homeowners faced in cataloging their lost items to secure insurance payouts after their properties were destroyed in the Los Angeles wildfires in January.

“The recent LA Fires exposed difficult inefficiencies in our insurance system that unnecessarily delay the urgently needed financial support survivors are justly due,” Allen said in a statement.

Additionally, the law grants property owners 100 days to provide insurers with proof of property damage following a declared state of emergency.

Insurers initially pushed back on the bill, but industry groups dropped their opposition after lawmakers agreed to lower the advance payment requirement from 100% to 60%.

“You would have had massive, massive payouts that would be unjustified,” said Seren Taylor, vice president for the Personal Insurance Federation of California.

Stabilizing the FAIR Plan

Assembly Bill 226 aims to ensure the FAIR Plan, the state’s last-resort insurance program, doesn’t run out of money after a catastrophic blaze.

The FAIR Plan is a state-created, privately managed insurance pool for homeowners who can’t find traditional coverage because their properties are deemed too risky. As worsening climate-driven wildfire seasons have scorched the state in recent years, the number of homeowners forced onto the plan’s expensive, bare-bones coverage has surged to almost 600,000.

Last year, FAIR Plan officials warned the program could become insolvent following a major wildfire. Then, after the Los Angeles blazes destroyed more than 17,000 structures, the plan said it faced roughly $4 billion in losses and was running out of money to pay claims. The state approved a $1 billion bailout from private insurers, with half the cost expected to be passed onto policyholders.

The new law, which passed with near-unanimous support from Democrats and Republicans, allows the FAIR Plan to request state-backed bonds and open lines of credit. The goal is to give the plan more flexibility in raising money to pay out homeowner claims, in turn requiring fewer bailouts and rate hikes.

“The kinds of climate-fueled firestorms like we saw in January will only continue to worsen over time,” Newsom said in a statement. “That’s why we’re taking action now to continue strengthening California’s insurance market to be more resilient in the face of the climate crisis.”

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