May 24, 2024
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by Camille von Kaenel

California’s wildfire market has been slowly collapsing, forcing political action.

While wildfires are costing insurers billions, it has taken years to try and keep premiums low. Legislators are a mix of regulators, governors, and legislators. Gavin Newsom and his team are preparing themselves for political hardship. In an attempt to attract insurers to California and keep them there, the insurance rate could be raised as part a legislative agreement.

Susan Rubio of Baldwin Park (D) said that “we’re on the same page but in a weird way.”

To expedite the passage of the bill through state legislature, several lawmakers plan to present a draft by mid-September. The insurers could charge all policies holders a fee to cover riskiest homes, or they could create rate models with a forward-looking outlook based upon expected increases in natural disasters.

Consumer groups that are able to exert enough political pressure on state officials in order to maintain the rates at the lowest levels of the country may attack them if these bills become law.

According to some experts, it’s time to make homeowners aware of the true costs they face when living in fire-prone zones.

Rubio: “Everything’s on the table. I won’t rule any thing out.”

The insurance market in California has experienced some dramatic moments as it shrank gradually. State Farm, Allstate and Farmers announced pullbacks in the spring due to wildfire threats and increasing costs resulting from inflation and worldwide disasters. Industry sources estimate that there are now 20 percent less insurance options than a year earlier.

Rubio told reporters that an alarm is going off. “We’re in a situation of crisis. Something must be done.”

Rural property owners, many of whom live in Republican-led, but relatively powerless districts, are the main problem in California’s deep blue.

The pressure on Southern California lawmakers is growing as the non-renewals expand into suburbs. There are more and more affected lawmakers.

Assemblymember Jacqui (D) Irwin of Thousand Oaks said the condo fees for her sister in Agoura Hills were increased by hundreds each month following a change to an earlier agreement.

The state-mandated FAIR Plan is the insurer-run plan that Sen. Marie Alvarado-Gil now uses after being dropped from her usual insurer.

It is not possible to go through another season of fires without finding solutions that will benefit our tenants, home owners, farmers, and businesses.

Newsom, and the Insurance Commissioner Ricardo Lara have also been involved in discussions according to POLITICO’s sources. Lara stated that, following a recent hearing, he was prepared to “pursue” legislative action if it were necessary in order to implement forward-looking pricing models.

Rate hikes won’t be welcomed by consumers, warn consumer groups as the momentum towards an agreement builds.

Harvey Rosenfield founded the nonprofit Consumer Watchdog. He said that if homeowners see their insurance rates suddenly increase, they could rebel. Voter revolt was passed by voters in 1988 who were outraged at the prospect of their homeowner insurance rates increasing 30 to 40 percent.

The table is being re-opened to other players. California Building Industry Association’s CEO Dan Dunmoyer says homebuilders lose projects due to insurers refusing coverage or charging them rates that are uneconomical.

FAIR Plan (the state’s insurer of last resort) is being asked to cover multi-family homes, including condominiums. In return, it wants to raise the premiums for all customers.

Dunmoyer, despite acknowledging the rate increase, said it would still be better for consumers to leave them with smaller insurers unregulated by government.

It is hard to explain to consumers and constituents that their insurance could cost 20 or 30 percent higher, but he says it’s still better than unregulated firms that charge up to 6,000 percent more. The decision is difficult, but ultimately it will benefit consumers.

The insurance industry hopes that any deal reached will allow them to adjust their rates to reflect the projections for more intense and frequent storms and fires caused by climate change. California is the lone state which does not permit forward-looking models. According to industry representatives, this would help insurers recover higher payouts in climate disasters by charging enough premiums.

Rex Frazier of Personal Insurance Federation of California said that legislators are open to using modern rating tools which incorporate climate science.

Many claim that raising rates in California because of climate forecasts is not going to encourage insurers to stay. Farmers Insurance left Florida in the last month because of hurricane costs.

Ten states including Florida sued the Federal Government in June to stop using the new models for the National Flood Insurance Program. According to these states, using the models in the National Flood Insurance Program will increase the premiums for people and cause them to leave homes that they are unable to afford.

Dave Jones is a former Californian insurance commissioner, and the director of University of California Berkeley’s Climate Risk Initiative. He says Florida insurers can do whatever California insurers want. Californians and Americans are steadily moving towards an insurable future.

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