Even after consuming a neighbor’s landscaping and setting fire to other neighboring properties, Tim Scanlon’s Altadena home was still engulfed in flames as of Wednesday afternoon.
The music licensing executive, however, was concerned that the firestorms raging throughout Los Angeles County would continue to have an impact on his finances by driving up already expensive insurance rates.
He currently pays $4,500 annually for homeowner’s insurance, which increased by $500 recently.
Who knows if I’ll still be insurable after this? Resting next to his house, well within the fire evacuation zone, Scanlon said. Our property values, which are our nest egg in California, will drastically decline if we are unable to obtain insurance up here.
New concerns regarding the availability and cost of insurance were sparked by the fires that raged throughout Los Angeles County. Some predict that this new destruction will topple insurance reforms that are currently in place, following years of soaring premiums, a flood of policy cancellations, and insurer withdrawals from the California market.
However, on Wednesday, January 8, California Insurance Commissioner Ricardo Lara emphasized that the conflagrations this week would not make it more difficult to obtain insurance.
In a statement, Lara said, “Insurance companies are committing to California, and we will hold them accountable for the promises they have made.”
According to his department, regulations created in the last 12 months will revolutionize the industry.
In addition to allowing them to estimate risk using computer modeling and factor in their own re-insurance costs from backup providers when determining future premiums, the regulations provide insurance companies additional flexibility in boosting rates. In exchange, based on their market share, insurance companies must issue a certain number of policies in regions that are prone to wildfires.
“We wouldn’t be in this situation six months ago,” stated Michael Soller, a spokesman for the Insurance Department. We are confident that the implementation of our legislation will transform the insurance landscape for individuals.
Representatives of the insurance sector concur, stating that Lara’s rules will stabilize rate increases and offer a more practical course of action. Industry representatives complained that rate hike evaluations were too drawn out under the previous regulations.
According to Rex Frazier, president of the Personal Insurance Federation of California, which represents businesses that provide 75% of the state’s policies, the market will not function unless businesses are able to price their products appropriately for the risk they face and obtain rate approval from the state in a timely manner.
These are significant modifications that, to be honest, are permitted in every other state. Frazier continued, “It’s not like this is a novel change.” California has a highly defensive stance when it comes to prices.
The Insurance Information Institute’s Western U.S. spokesperson, Janet Ruiz, said the wildfires this week are if anything a reminder of the need for reform.
California is a desirable location for insurance firms. According to Ruiz, it’s the biggest insurance market in the nation. However, we must be able to turn a profit, which hasn’t happened in a while.
Although the exact financial damage of the fires is still unknown, AccuWeather released a preliminary estimate on Wednesday that put the overall losses between $52 and $57 billion.
Daniel Swain, a climatologist at UCLA, was quoted by Bloomberg News as saying that it is possible that the Palisades Fire in particular will end up being the most expensive fire ever. In general, not only in California.
According to Ruiz and Frazier, insurance companies should be able to manage the claims that these disasters will produce because their rates are based on catastrophic losses.
However, one analyst told The New York Times that the wildfires this week would put a strain on insurance firms’ reserves. The number of properties in Palisades Fire ZIP codes that are enrolled in the FAIR Plan, the state’s insurer of last resort, almost doubled between 2023 and 2024, according to another analyst who spoke to The Times. Insurance companies operating in the state will be responsible for paying the difference if the FAIR Plan is unable to cover all of the claims from this week’s wildfires.
Denneile Ritter, a vice president of the American Property Casualty Insurance Association, told The Times that it is still unclear if Lara’s new rules will stop insurers from leaving California.
Ritter stated that we must observe the real implementation of the reforms. We’re hopeful, but it’s too soon to know.
Insurance companies will take advantage of this week’s firestorms to increase homeowner rates, according to a lawyer who launched a class-action lawsuit against Liberty Mutual Insurance last month over policy non-renewals.
The insurance business has done a great job of playing the victim, according to Michelle Meyers, a lawyer at Singleton Schreiber LLP in San Diego. That study ignores the fact that, for instance, the property insurance sector, which includes homeowner insurance, generated $88 billion in profits in 2023. Unfortunately, I believe that this will ultimately be a chance for them to try to exploit their insureds even more.
However, the California insurance market is not expected to be affected by the wildfires, according to Consumer Watchdog, a longtime opponent of Lara’s reforms.
“We believe California insurance companies are in a good position to deal with the claims,” said Carmen Balber, executive director of Consumer Watchdog. We don’t anticipate more companies fleeing the state or any further pressure on the markets.
In a televised interview, state senator Ben Allen, whose district contains the Palisades Fire, endorsed Lara’s new regulations’ elements, such as factoring in anticipated fire risks when determining premiums.
They have never seen anything like this before. The mix of dryness and wind. It will be necessary to consider evolving circumstances when determining insurance coverage. “Santa Monica D. Allen told Fox 11 News.” However, we will need to demand more from the insurance sector in exchange.
In the meanwhile, Lara declared that policy cancellations and non-renewals based on wildfire risks in L.A. County wildfire zones will be suspended for a year.
While assisting a neighbor in clearing combustible palm fronds from her backyard on Wednesday afternoon, Tom Ward, a resident of Pasadena who lives just west of Eaton Canyon, voiced concerns about rate hikes.
“I tend to think homeowner insurance will go up based on my history dealing with insurance companies,” Ward said. All of this has a greed component. I hate to seem pessimistic.
