PROTECTING HOMES— Firefighters try to cut open a garage door in an attempt to save a home on Kellwood Court in Oak Park during the 2018 Woolsey fire. Insurance companies are using fire as an excuse to drop coverage. Acorn file photo
A proposal by state Insurance Commissioner Ricardo Lara is aimed at stemming the tide of insurance companies fleeing the state and increasing the number of homeowners and commercial property policies in counties at high risk of wildfire, including those in western Los Angeles and eastern Ventura counties.
Allstate, Farmers Insurance, The Hartford and State Farm are dropping out of the state personal insurance market, won’t renew policies in high risk areas or will stop offering new homeowners policies in the state.
At issue are the high payouts the insurance companies are on the hook for, primarily associated with wildfires, but also flooding and damage along the coast.
As a result, some homeowners are forced to buy insurance through the California FAIR Plan, a policy of last resort that provides basic fire coverage.
“Whether you live in the Sierra or the foothills, along the coast or in a city, California is not a one-size-fits-all place, and we need to be inclusive,” Lara said at a June news conference.
“We are enacting a major reform that will result in insurance companies writing more policies, so if you are stuck on the FAIR Plan because of your unique wildfire risk, there will be help for you.”
Lara wants to rewrite the wildfire-risk maps for 28 counties from the Oregon border to Ventura County.
The Thomas fire, which burned in Ventura and Santa Barbara counties in December 2017 and, for a time, was the largest wildfire in state history, set the stage for several more blazes that burned hundreds of thousands of acres, displaced scores of people and caused billions in damage.
In 2018 alone, California wildfires caused economic losses of nearly $150 billion—about 0.7% of the entire United States gross domestic product that year—according to a study by researchers at UC Irvine, China’s Tsinghua University and other institutions.
That year saw 8,500 separate fires burn 1.9 million acres, making them the deadliest and most destructive in any year in California history. Insurance companies that haven’t left the state or haven’t stopped writing new policies have increased the price of policies more than double in some cases. As a result, about 350,000 property owners have turned to the California FAIR Plan, offered by the pool of all insurers licensed to do business in the state.
FAIR stands for Fair Access to Insurance Requirements and the percentage of such policies in relation to the overall number of policies in California increased from 2.5% in 2020 to 3.1% in 2022, according to the state Department of Insurance.
In counties like Ventura, where more than 20% of homes are considered in areas of high risk for wildfires, the number of policies canceled or not renewed in 2015 was 74,467. That number jumped to 128,641 six years later, before dropping to 110,389 in 2022.
Under state law, insurance companies can choose where they sell their products. Increasingly that means they are selling in less risky areas.
This issue has rendered the FAIR Plan as the only policy for some people.
Lara wants to change that. His strategy would allow insurance companies to use forward-looking catastrophe models if—and only if—they increase the writing of policies in wildfire-distressed areas.
Larger insurance companies would need to write policies for no less than 85% of properties within two years of a rate filing being adopted and report their progress to the Department of Insurance. Companies already meeting the threshold will be required to maintain those policies in force for three years.
Smaller companies, new entrants and companies that largely write policies outside of wildfire-risk areas and cannot meet the 85% requirement would need to expand their writings by at least 5%. And commercial insurance companies will need to increase coverage by 5% in wildfire distressed ZIP codes statewide, which will increase coverage options for farms and wineries, homeowners and condo associations, and other businesses. The California Farm Bureau applauded the plan.
“Competition is the first step to guide the market to a place where pricing reflects ongoing wildfire mitigation efforts undertaken by Californians, including by our farmers and ranchers who work to remove fuels and safeguard properties. Our productive agricultural lands provide important buffers that can reduce the risk of catastrophic fire events,” said Shannon Douglass, president of the California Farm Bureau.
