WildFire Insurance update: AP article in SJ Mercury 1/1/25:
Insurers told to increase coverage
Regulation requires companies to offer policies in fire-
risk areas, but group says expect to pay a lot
BY TRAN NGUYEN
THE ASSOCIATED PRESS
Hundreds of thousands of California homeowners who have failed to find or lost
access to home insurance as wildfires become more destructive could again be able
to purchase policies under a state regulation announced Monday.
The rule will require home insurers to offer coverage in fire-risk areas if they want
to take advantage of a new incentive that will allow them to charge customers more,
something the state has never done, Insurance Commissioner Ricardo Lara’s office
said in a statement. Insurers would have to start increasing their coverage by 5%
every two years until they hit the equivalent of 85% of their market share. That
means if an insurer writes 20 out of every 100 state policies, they’d need to write 17
in a high-risk area, Lara’s office said.
The requirement will take effect within 30 days, though it’s unclear when insurers
might significantly expand coverage.
In recent years, major insurers such as State Farm and Allstate have stopped writing
any new policies in California due to fears of massive losses from wildfires and
other natural disasters.
“Californians deserve a reliable insurance market that doesn’t retreat from
communities most vulnerable to wildfires and climate change,” Lara said in a
statement. “This is a historic moment for California.”
In exchange for agreeing to expand coverage in fire-risk areas, insurers will be able
to pass along their own reinsurance costs to consumers. Insurance companies buy
reinsurance — essentially insurance for insurers — to manage their losses in the
event of catastrophic wildfires or other major disasters.
If providers decide to write more policies in risky areas, they will also be able to
consider climate change when setting their prices under a different rule taking
effect this week. Both reforms are part of an effort to persuade insurers to continue
doing business in the nation’s most populous state.
Areas where insurers would be expected to expand coverage include vast swaths of
the North and Central coasts, the Sierra Nevada Mountains and most of far Northern
California, and in the greater Bay Area, Marin, Napa and Santa Cruz counties, a
portion of the East Bay hills, as well as parts of San Mateo and Sonoma counties and
a sliver of Santa Clara County.
Insurers would also have to offer new policies for fire-risk homes in more urban
areas such as the Oakland Hills and Los Gatos. The California Department of
Insurance expects to make slight updates to the required coverage areas in early
2025.
A consumer advocacy group said the reforms will allow insurance companies to
drive up home insurance rates by 40% to 50% and lack the teeth to enforce a
substantial expansion in wildfire coverage. “There is no opportunity for public
comment, as it was issued on an emergency basis,” Consumer Watchdog said
Monday.
“This plan could drive the price of home insurance up by 40%,” said Jamie Court,
president of the watchdog group. “Tellingly, the commissioner did not do a cost
impact analysis of his plan on consumers. That’s because this plan is of the
insurance industry, by the insurance industry, and for the industry. The
commissioner has left no opportunity for public comment on the regulation before
it is final by issuing it on an emergency basis. It’s the worst type of power grab.”
Wildfires have always been part of life in California, where it only rains for a few months out of the year. But as the climate has gotten hotter and dryer, those fires
have become much larger and more intense. Of the top 20 most destructive
wildfires in state history, 14 have occurred since 2015, according to the California
Department of Forestry and Fire Protection.
In some counties in California, nonrenewal rates have increased more than 500%
since 2018, according to a New York Times report on a newly released congressional
investigation. The probe found that since 2018, more than 1.9 million home
insurance contracts nationwide have been dropped.
Staff reporter Ethan Varian contributed to this story.
Thanks to Lee Smith for posting this article in Nextdoor!
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