California homeowners will share pain of LA fire losses
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Contractors remove debris from a home burned by the Eaton Fire. Photo: Kyle Grillot/Bloomberg via Getty Images
Virtually every homeowner in California may have to dip into their pockets to help cover the cost of January's Los Angeles wildfires, after the state's insurance regulator approved an industry-wide levy for the insurer of last resort.
Why it matters: The $1 billion assessment for the California FAIR Plan is not as bad as some feared but has prompted renewed calls for reform as the state faces ever-growing, climate-fueled risks.
- It comes less than six months after the state's insurance commissioner confidently told the industry that future assessments to rescue the FAIR Plan were "highly unlikely."
Zoom out: The California Department of Insurance approved the assessment Tuesday, with the state's private insurers required to absorb half the cost.
- Under reforms enacted just last year, private insurers will have the right to request approval from the state to pass the rest of the cost, about $500 million, to their customers.
- Assuming every insurer requested and received such approval, and based on estimates of around 8 million homeowners' insurance policies in force in the state, the impact would be a little more than $60 per policyholder.
- FAIR Plan had more than $5 billion of residential fire risk exposure in just the Pacific Palisades area as of last September, and more than $400 billion statewide.
The big picture: While the individual impact should be relatively small — less than 5% percent of the average homeowner's yearly bill — the broader implication remains. The losses were so devastating that they are being shunted to people more than 500 miles away who were otherwise unscathed.
- Because of the state's mounting wildfire risk and losses, insurers have been pulling out of the market, leaving people little choice but to seek last-resort coverage.
- The state implemented a series of reforms last year to bolster the market, including letting insurers recoup more costs, but those are just kicking in and could take years to bear fruit.
What they're saying: "With peak fire season still ahead, the urgent need for reforms to stabilize California's insurance market and protect consumer access to coverage now and in the future has never been greater," the American Property Casualty Insurance Association said in a statement.
- The trade group called on the state to diversify the FAIR Plan's funding sources and allow it to charge "actuarially sound" rates.
- Those rates would presumably be higher than what it currently charges.
The intrigue: Whether those reforms happen or not, and how they affect not only the insurance industry but rebuilding big chunks of Los Angeles.
- Risk advisor and insurance broker Howden Re estimated this week that $6 billion in upfront spending on fire mitigation efforts could have halved the $75 billion economic loss from the fires.
Yes, but: Despite such recommendations, in the early days of the reconstruction, the state's been moving toward less restrictive codes, not more, to accelerate rebuilding.
