The wind-driven wildfires burning out of control in the Los Angeles area couldn't have come at a more dangerous time for California homeowners as officials try to rehabilitate what they admit is a deepening “insurance crisis.”
“We all thought 2025 would be the year insurers regain their appetite for the California market, but it's truly unfortunate that this catastrophe has directly affected us,” said Amy Bach, executive director of United Policyholders. California-based nonprofit consumer group.
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“Until this last disaster,” she said, “we thought we might be turning a corner.”
The state Department of Insurance last month issued a new regulation intended to stem the tide of some of the largest insurance companies' refusal to take on new customers in California or decisions not to renew the policies of current ones. Under this rule, insurance companies are allowed to pass on the costs of reinsurance to consumers, albeit at an amount that cannot exceed an industry standard.
Reinsurance is the protection insurance companies acquire to protect themselves against catastrophic claims events.
The Insurance Department said California was the only state not to allow the costs to be passed on.
In return, insurers doing business in the state must once again provide coverage in fire-prone areas at a mandatory amount. Another rule finalized last month allows insurers to include catastrophe models in their rates, provided they increase their policy offerings in underserved parts of the state.
“Californians deserve a reliable insurance market that does not retreat from communities most vulnerable to wildfires and climate change,” Insurance Commissioner Ricardo Lara said in an earlier statement. “This is a historic moment for California.”
However, the actions drew criticism from consumer advocates who worry it will only lead to sharply higher premiums.
Lara's office did not immediately respond to a request for comment Wednesday in the wake of the latest wildfires.
The ongoing Palisades fire is poised to become one of the state's costliest: Fire officials said Wednesday that more than 11,800 acres have been destroyed and 1,000 structures burned, while a JP Morgan Insurance analysis estimates that insured losses from from that fire alone could approach $10. billion. At least four other major fires have also broken out.
JP Morgan analysts note that the area of the Palisades Fire is “an affluent residential area, with a median home price” of more than $3 million.
Bach said homeowners in California can pay between $1,000 and more than $40,000 a year to insure their properties.
While no law requires property owners in the state to obtain insurance, those with mortgages are required to have it. However, typical property insurance policies generally do not cover damage from disasters such as earthquakes, floods and landslides. Separate insurance policies are required to protect against these types of disasters.
The concern is not whether insurance companies will pay out for the damages, but rather how much and how long it will last, Bach said.
“For the people who lose their homes to these wildfires, there will be battles over coverage,” she said.
But that's if they have insurance at all.
In the wealthy Pacific Palisades neighborhood ravaged by the wildfires, some homeowners were stunned in March when State Farm announced it would stop renewing their coverage.
State Farm, California's largest home insurer, said its decision was “not made lightly.” It blamed costs associated with inflation, catastrophe exposure, reinsurance and regulation for the need to “protect its bottom line.”
The devastation caused by wildfires in particular, which has led to tens of billions of dollars in insured property losses in California over the past decade, has only intensified as climate change leads to rising temperatures, longer fire seasons and increased droughts.
State Farm said in a non-renewal letter to the state that the 30,000 property insurance policyholders dropped across California lived in areas deemed to have “the most substantial wildfire or fire following earthquake hazards.” The Westside region of Los Angeles was hardest hit by the company's decision, which went into effect last summer. In Pacific Palisades, more than 1,600 policies were not renewed.
State Farm had already said in 2023 that it would no longer offer home insurance to new customers in California, in part because of its exposure to catastrophes. Allstate, the sixth-largest home insurer in California, also said it would stop new policies in the state that year.
Asked about coverage for homeowners in areas affected by the wildfires, State Farm said in a statement Wednesday that its “priority at this time is the safety of our customers, agents and employees affected by the fires and assisting our customers in the midst of the forest fires. this tragedy.”
California does have an insurance program under the Fair Access to Insurance Requirements Plan, established in the 1960s, which provides fire insurance coverage for high-risk properties. The coverage is basic and is financed by the insurance companies.
Although intended as a last resort for homeowners, its use has only increased in recent years, from nearly 154,500 home policies in September 2019 to more than 408,400 in June — creating a major risk exposure that government officials say was never intended.
But there was a glimmer that some insurance companies are willing to fill the gaps in the market. On Tuesday, Mercury Insurance, an independent home insurer in California, announced it would begin writing new homeowners insurance policies in the town of Paradise, the site of the deadly 2018 Camp Fire, considered the worst wildfire in modern state history. .
Janet Ruiz, the chief spokesperson for the Insurance Information Institute, which represents the insurance industry, told NBC Bay Area that the reality is that companies must manage how much they can handle in the face of devastating 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 part of it, but we have to make some profit.”
Bach said if the state is successful in motivating insurance companies to get back into the market and become competitive, it could be a benefit to consumers.
But she said she worries the latest wildfires will only have an adverse effect on already skittish insurers.
“Home insurance is an essential good that the private market is increasingly unwilling to provide,” Bach said. “We are at a crossroads.”
This article was originally published on NBCNews.com
