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The slow-motion collapse of California’s wildfire insurance market is forcing a political reckoning.
It has been years of trying to keep insurance premiums affordable while wildfires cost insurers billions of dollars. Legislators, regulators and Gov. Gavin Newsom are all preparing to suffer some political pain. As part of a legislative deal, insurance rates could rise in an effort to woo insurers back to the state — and stop more from leaving.
Sen. Susan Rubio (D-Baldwin Park), chair of the Senate Insurance Committee, said, “We’re all on the same page in a strange way.”
Several lawmakers want to introduce a bill by mid-September, to expedite it through the state’s legislative session. Insurers could charge all policyholders a fee for covering the riskiest properties, and they could use forward-looking rate models based on expected natural disaster increases.
Consumer advocates who have wielded enough political influence to keep the state’s rates among the lowest in the country could attack elected officials if the bills pass.
Some experts believe it may be time to expose homeowners to the actual costs of living in fire-prone areas.
“Everything is on the table, and I don’t rule anything out,” Rubio said.
There have been some dramatic moments in the state’s insurance market as it has shrunk gradually. The wildfire threat and rising costs due to inflation and global disasters led State Farm, Allstate and Farmers to announce pullbacks this spring. It is estimated that insurance options are 20 percent fewer than they were a year ago, according to industry sources.
There is an alarm bell going off right now,” Rubio said. “We are in a crisis and something must be done.”
The problem is mostly with rural property owners in deep-blue California, who live in relatively powerless, often Republican-led districts.
As nonrenewals spread into Southern California suburbs, pressure is mounting. And more lawmakers are being affected.
Assemblymember Jacqui Irwin (D-Thousand Oaks) said her sister’s condo fees in Agoura Hills, north of Los Angeles, went up by hundreds a month after being dropped from an earlier plan.
After being dropped by her regular insurer, Sen. Marie Alvarado-Gil (D-Jackson) is now on the state-mandated, insurer-run FAIR Plan.
In a hearing this spring, she said, “I hear directly from my constituents about the impacts of the insurance industry and wildfires on their homes almost every day.” I can’t go through another fire season without finding solutions for our businesses, our homeowners, our renters, and our farmers.
According to three people close to the discussions who POLITICO agreed not to name because the talks are ongoing, Newsom and Insurance Commissioner Ricardo Lara are also involved in the talks. As a result of a hearing last month, Lara said he would “pursue legislative action” if necessary to allow forward-looking rate models.
Consumer advocates warn that rate hikes will not be well received by the public as momentum toward a deal builds.
“When people see a sudden increase in their homeowner insurance rates, they might rebel against the industry if these rates increased too much,” said Harvey Rosenfield, founder of the consumer advocacy nonprofit Consumer Watchdog. “Voters turned out in large numbers and passed Voter Revolt in 1988 because they didn’t want their insurance rates to increase by 30 percent or 40 percent.”
For the first time, other players are joining the table. California Building Industry Association CEO Dan Dunmoyer said home builders are losing projects because insurers are either unwilling to cover them or are charging rates that make them uneconomical.
It wants the state’s last-resort insurer, the FAIR Plan, to expand its coverage of multi-family units such as condominiums, and to charge all insurance customers an increased premium to compensate.
Despite acknowledging that rates would rise, Dunmoyer said consumers would be better off than leaving them to smaller insurers that are unregulated by the state.
Although it is difficult to explain to constituents and consumers that they could end up paying 20 percent or 30 percent more for insurance, he said that it’s better than having unregulated companies that charge five or six thousand percent more. “It’s a hard political action to take, but it’s the right one for consumers.”
Insurers hope a deal will include the ability to base rates on projections of more severe and frequent fires and storms due to climate change. The only state that doesn’t allow forward-looking models is California, and industry representatives say that it will help insurers recoup increased payouts from climate catastrophes by charging high enough rates.
Rex Frazier, CEO of the Personal Insurance Federation of California, an industry group, said that lawmakers are open to modern rating tools that incorporate climate science.
Many argue that allowing insurers to raise rates based on climate projections won’t entice them to remain in California. For instance, Farmers Insurance pulled out of Florida last month due to hurricane-related costs.
As part of the lawsuit to stop the use of the new models in the National Flood Insurance Program, ten states, including Florida, sued the federal government in June. According to the states, the models will raise premiums and force people to move out of homes they can no longer afford.
As a former California insurance commissioner and director of the University of California, Berkeley law school’s Climate Risk Initiative, Dave Jones says Florida insurers are allowed to do everything that California insurers are asking for. In California and throughout the United States, I believe we’re steadily marching toward an uninsurable future.
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