California fires could worsen insurance woes
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The raging wildfires in L.A. County have thrust California's insurance industry back into the spotlight.
Why it matters: More than a quarter of properties statewide have recently seen insurance rates rise because of wildfires or flooding.
The big picture: Climate change has made California more susceptible to wildfires — a risk that's making insurers reconsider doing business here.
- Companies including State Farm have dropped thousands of policies, citing outdated regulations and high rebuilding costs as additional reasons for discontinuing coverage.
By the numbers: Insurance has become both more expensive and difficult to obtain.
- Home insurance policy non-renewals grew from fewer than 46,000 in 2018 to more than 87,000 in 2023, according to a report released in December from the U.S. Senate Budget Committee.
- Over the past nine years, there have been nearly 7.6 million non-renewals across California, according to a San Jose Mercury News analysis of California Department of Insurance data.
- San Francisco had just 84,179 from 2015 to 2024, the analysis shows. Other Bay Area counties with large numbers of non-renewals included Alameda, Contra Costa, Sonoma and Santa Clara.
Catch up quick: The California Department of Insurance unveiled a plan last summer to expand coverage 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 a traditional policy.
- The new reforms allow companies to project future losses through "catastrophe modeling," rather than just relying on historical data. Insurers can now also pass along reinsurance costs to their customers.
Threat level: 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.
Between the lines: The state's insurance overhaul remains controversial, as opponents said rates are likely 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.
What they're saying: Though the new reforms might not have an immediate effect, especially as the wildfires continue to burn, the market could begin to open up soon "in areas that are not being impacted by any type of fire risk," said Karl Susman, an insurance broker based in Los Angeles.
- "As bizarre as it sounds, I'm still cautiously optimistic," he said.
Axios' Andrew Keatts and Kate Murphy contributed to this story.