As if California needs another crisis, the state’s seemingly perpetual wildfires are forcing millions of homeowners in fire-prone areas to pay sky-high premiums for insurance coverage – if, indeed, they can buy it.
As the number and severity of forest fires increase, insurers are increasingly reluctant to renew their policies and even if they do, premiums often double or triple.
Insurance is mandatory for most homeowners since their mortgage lenders require it. And if they can’t get regular coverage, they’re forced to go to the insurer of last resort, FAIR, which has very high premiums and coverage limits.
Insurance commissioner Ricardo Lara has repeatedly invoked a law he drafted three years ago as a state legislator, imposing one-year moratoriums on policy cancellations for property located on major fire sites or in the immediate vicinity.
In 2020, Lara’s moratoria covered 2.4 million policyholders after fires burned more than 4 million acres and consumed hundreds of homes and other buildings. When this year’s fires are finally extinguished, including the massive Dixie Blaze and Caldor Blaze that nearly wiped out South Lake Tahoe, Lara will extend the moratoria to their burn areas.
At best, however, such moratoria are only palliatives. So, one might ask, what are politicians doing about the crisis?
There are scapegoats. This month, MP Marc Levine, a Democrat from fires-prone Marin County, sent a letter to insurance trade groups, telling them, “I don’t think the costs of mismanaging public services , or the impacts of climate change should be arbitrarily and capriciously passed on to my constituents in the form of refused, non-renewed home insurance or a sky-high increase in their insurance premiums. Especially when there has been no change in conditions or circumstances.
The circumstances are also beyond the control of insurers, as they assess potential losses and calculate whether to offer coverage and, if so, what to charge. They cannot, as Levine seems to suggest, ignore perils, whatever the causes.
Levine later introduced legislation that would make the state an insurer for those who cannot purchase coverage elsewhere.
John Norwood, a seasoned insurance industry lobbyist, exposed the dilemma in a recent article for an industry publication:
“The availability and affordability of property insurance in California is not likely to change until the global reinsurance market believes California is serious about managing its wildfire risk and that there are demonstrable results in reducing the number and severity of forest fires in the state.
“Without the reinsurance market supporting property and casualty insurance companies in California, there will always be a crisis of availability in the state for property insurance and the prices for that coverage will continue to rise. increase dramatically at the expense of California homeowners and businesses. “
The initial state budget signed by Gov. Gavin Newsom earmarked $ 2 billion to make the state more fire resistant, but has been criticized for spending billions more on lesser issues. Last week, with large fires still burning, the forest fire budget was sharply increased before the legislature adjourned for the year.
Reducing the likelihood of destructive fires is a good step in the right direction, but the insurance crisis demands more, perhaps even an entirely new approach.
The state could, for example, purchase basic disaster insurance for every owner of California property – covering earthquakes and floods, as well as fires – and pay for it through some sort of property assessment. Landowners could tap the private market for coverage beyond the limits of the basic policy.
With reinsurance, the risk would be spread around the world and Californians would not have to worry about looking for coverage. The state’s voluntary earthquake insurance program already embodies this concept.
There may be other viable approaches, but without new thinking, the insurance crisis will continue, as Norwood warns, to worsen.
CALmatters is a public service journalism company committed to explaining how the California State Capitol works and why it matters. Dan Walters has been a journalist for almost 60 years, spending most of those years working for California newspapers.