California fires increase insurance risk
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The raging wildfires in L.A. have thrust California's insurance industry back into the spotlight.
Why it matters: More than a quarter of properties across California have recently seen insurance rates rise because of wildfires or flooding.
State of play: Nearly 750,000 properties in San Diego County faced higher insurance premiums or policy non-renewals because of extreme weather threats in 2023, per an analysis from climate data nonprofit First Street.
- More than 10% are at risk because of wildfires and about 4% due to flooding.
- With large sections of the county in high fire hazard zones, homebuyers worry about safety and can struggle to get insurance.
The big picture: Climate change has made California more susceptible to wildfires — a risk that's making insurers reconsider covering the state.
- In April, State Farm announced it was discontinuing coverage for 72,000 homes in the state, in part due to catastrophes like wildfires, including approximately 2,293 San Diego County policies.
Catch up quick: This summer, the California Department of Insurance unveiled a plan to expand conventional insurance policies to homes in high-wildfire risk areas that currently rely on the FAIR Plan, a high-cost option of last resort for those who can't get private coverage.
- That plan allowed companies to project future losses through "catastrophe modeling," rather than just relying on historical data, and let insurers pass some reinsurance costs on to their customers.
- Those areas with high FAIR Plan concentrations include a handful of East County areas, as outlined by the state.
Between the lines: Those changes were controversial, as opponents said they would cause rates to rise faster than coverage would expand.
- The Insurance Information Institute, a clearinghouse for the industry, says the regulations are prompting more insurers to write more coverage, but this week's fires could complicate matters.
By the numbers: As of Sept. 2024, FAIR Plan's exposure to residential wildfire risk was $431.45 billion, up almost 60% from the year before.
- The number of active policies rose 123% in four years, the agency says.