Southern California wildfires add to growing worries about homeowner insurance

Wildfires spared Tim Scanlon’s Altadena home as of Wednesday afternoon, even after devouring a neighbor’s landscaping and torching several nearby properties.

But the music licensing executive worried that the firestorms rampaging across Los Angeles County still will affect his pocketbook, pushing already rising insurance premiums even higher.

He’s paying $4,500 a year for homeowner insurance, which recently rose by $500.

“After this, who knows if I’m insurable anymore,” Scanlon said while resting beside his house, well within the fire evacuation zone. “If we can’t get insurance up here, our property values will plummet, and in California, that’s our nest egg.”

See also: Anguished homeowners struggle to keep their insurance

Blazes raging across Los Angeles County raised new fears about the cost and availability of insurance. After years of skyrocketing rates, a deluge of policy cancellations and insurer departures from the California market, some expect this new devastation will upend insurance reforms now in the process of taking effect.

But California Insurance Commissioner Ricardo Lara insisted Wednesday, Jan. 8, that this week’s conflagrations won’t make insurance harder to get.

“Insurance companies are pledging their commitment to California, and we will hold them accountable for the promises they have made,” Lara said in a statement.

Also see: ‘Big one we all feared’: Wildfires devastate Southern California

Regulations developed over the past year will be a “game changer,” his department said.

The regulations give insurance companies more leeway in raising rates, while allowing them to use computer modeling to forecast risk and to incorporate their own “re-insurance” costs from backup providers in setting future premiums. In return, insurance companies are required to write a minimum number of policies in wildfire-prone areas based on their market share.

“Six months ago, we wouldn’t have been in this position,” said Insurance Department spokesman Michael Soller. “We have that confidence that our regulations are in effect, and it’s going to change the insurance picture for people.”

See also: Home insurance reform urgently needed in California, watchdog says

Some insurance industry representatives agree, saying Lara’s regulations will provide a more realistic path forward while stabilizing rate hikes. Under the old rules, rate hike reviews took too long, industry representatives said.

“The market is not going to work unless there is the ability of companies to price to the risk that they face and to get a rate approval from the state in an appropriate amount of time,” said Rex Frazier, president of the Personal Insurance Federation of California, which represents companies providing 75% of policies in the state.

“These are important changes, and honestly, these are changes every other state allows. It’s not as if this is a novel change,” Frazier added. “California has a very protective attitude towards pricing.”

If anything, this week’s wildfires are an example of why reforms are needed, said Janet Ruiz, the Western U.S. spokesperson for the Insurance Information Institute.

“Insurance companies want to be in California. It’s the largest insurance market in the country,” Ruiz said. “But we have to be able to make some profit, and that hasn’t been the case in recent years.”

While it’s too soon to know the financial cost from the fires, AccuWeather issued a preliminary estimate fixing total losses at $52 to $57 billion as of Wednesday.

Bloomberg News quoted UCLA climatologist Daniel Swain as saying that “it is plausible that the Palisades Fire in particular will become the costliest fire on record, period. Not just in California, but in general.”

Also see: 5 dead as Eaton fire explodes to 10,600 acres — hundreds of structures destroyed or damaged

Because insurance rates are based on catastrophic losses, Ruiz and Frazier said, providers should be able to handle the claims these fires will generate.

But one analyst told The New York Times that insurance companies could see a drain on their reserves from this week’s wildfires. Another analyst told The Times that the number of homes in Palisades Fire ZIP codes that are enrolled in the state’s insurer of last resort, the FAIR Plan, nearly doubled from 2023 to 2024. If the FAIR Plan can’t cover all the claims from this week’s wildfires, insurance companies operating in the state will have to cover the difference.

It’s not yet clear whether Lara’s new regulations will stem the exodus of insurers from California, Denneile Ritter, a vice president with the American Property Casualty Insurance Association, told The Times.

“We need to see how the reforms are actually implemented,” Ritter said. “We’re optimistic, but it’s too early to tell.”

An attorney who filed a class-action lawsuit last month against Liberty Mutual Insurance over policy non-renewals argued that insurance companies will use this week’s firestorms as an opportunity to raise homeowners’ rates.

“The insurance industry has done a significant job of making themselves the victim,” said Michelle Meyers, an attorney with San Diego-based Singleton Schreiber LLP. “What gets glossed over in that analysis is that in 2023, for example, the property insurance industry that includes homeowner insurance made $88 billion in profits. … And sadly, at the end of the day, I think this will be an opportunity for them to try to take advantage further of their insureds.”

But Consumer Watchdog, a longtime critic of Lara’s reforms, doesn’t expect the wildfires to disrupt the California insurance market.

“We think insurance companies in California are well positioned to handle the claims,” said Carmen Balber, Consumer Watchdog executive director. “We don’t expect any additional pressures on the markets and more (companies leaving) the state.”

State Senator Ben Allen, whose district includes the Palisades Fire, expressed support in a television interview for features included in Lara’s new regulations, including taking projected fire risks into account when setting premiums.

“This is nothing like they’ve ever seen before. The wind, the combination of dryness. There are changing conditions that we’re going to have to take into account when we figure out insurance plans,” Allen, D-Santa Monica, told Fox 11 News. “But in return, we’re going to have to ask more from the insurance industry.”

Meanwhile, Lara announced plans to impose a one-year moratorium on policy cancellations and non-renewals based on wildfire risks in L.A. County wildfire zones.

Pasadena resident Tom Ward, who lives just west of Eaton Canyon, expressed concern about rate hikes while helping a neighbor clear flammable palm fronds from her backyard Wednesday afternoon.

“Based on my history in dealing with insurance companies, I tend to think homeowner insurance will go up,” Ward said. “There is a greed factor in all of this. I hate to be cynical.”

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