The Insurance Crisis That Will Follow the California Fires

https://www.newyorker.com/news/the-lede/the-insurance-crisis-that-will-
follow-the-california-fires

Last week, on the day before New Year’s Eve, California’s insurance 
commissioner, Ricardo Lara, announced what his office called “a landmark 
regulation” to improve access to coverage. The new rule, the commissioner 
declared, would address the problems that California homeowners were 
facing in the present and, at the same time, build “a resilient insurance 
market for the future.” Then the Palisades Fire ignited, soon to be 
followed by the Eaton Fire, the Hurst Fire, the Lidia Fire, and the Sunset 
Fire. With damages from these still mostly uncontrolled blazes now 
estimated at up to a hundred and fifty billion dollars, the future of 
California’s insurance market is looking a lot more rocky than resilient. 
As one L.A.-based insurance agent put it to the Wall Street Journal, “We 
are in uncharted territory.”

What is often referred to as California’s “insurance crisis” has been 
years in the making. The devastating Camp Fire, near Chico in 2018, caused 
an estimated sixteen and a half billion dollars’ worth of damage and led 
to a net loss for companies that had written fire policies in the state 
that year. In 2019, the number of homeowners’ policies in California that 
were not renewed jumped by more than thirty per cent. In 2023, two giant 
insurers, State Farm and Allstate, announced that they would stop writing 
new policies for various forms of property insurance in California. State 
Farm said the move came in response to inflation and “rapidly growing 
catastrophe exposure.” Last summer, it cancelled coverage for more than 
fifteen hundred homes in Pacific Palisades, the wealthy enclave where the 
first of the L.A. blazes began.

There are several reasons that “catastrophe exposure” in California has in 
recent years been growing. One is that more people are moving into 
wildfire-prone areas. Another is that fires are becoming more destructive, 
in large measure owing to climate change. A 2023 study concluded that the 
area consumed by summer wildfires in central and northern California has 
increased by five hundred per cent during the past several decades and 
that “nearly all of the observed increase” is due to warming. Another 
study, put out last year by the group Climate Central, found that rising 
temperatures had increased the number of “fire weather days”—windy, hot, 
and dry—throughout California. This was particularly the case in the 
desert basin east of L.A., which now has an average of sixty-one more such 
days per year than it did five decades ago. “As our climate warms, the 
chances of intense, fast-growing fires like the ones Californians are 
facing today will keep rising,” Kaitlyn Trudeau, a senior research 
associate at Climate Central, said on Wednesday.

Making a bad situation worse, at least from the insurance companies’ 
perspective, California’s insurance department made it hard for them to 
recoup or even project the growing costs of weather-related disasters. 
Until department rules were revised last year, they prevented companies 
from using so-called catastrophe models to forecast losses from wildfires; 
insurers could only look backward, at historical losses. Also, until last 
month, they could not pass on the costs of reinsurance, which is basically 
insurance for insurers, and which has been rising steeply in price.

In return for the changes to the rules, insurers are now required to write 
more policies for homeowners in wildfire-prone areas. Some consumer 
advocates condemned the deal as too favorable to the industry. Others 
hoped that it would, finally, improve access to coverage. “We were all 
thinking 2025 is going to be the year insurers regain their appetite for 
the market in California,” Amy Bach, the executive director of United 
Policyholders, a California-based nonprofit, told NBC News. “Having this 
catastrophe hit us right out of the gate is really unfortunate.”

California is, of course, not the only state facing—or not facing up to—a 
climate-inflected insurance crisis. After a series of devastating 
hurricanes—Harvey in 2017, Ida in 2021, Helene and Milton in 2024—property 
owners in Florida, Louisiana, and Texas are also finding insurance 
increasingly hard to afford or even obtain. The situation is similar in 
Colorado, where, as in California, wildfire risks are climbing. “We’re a 
few bad decisions away from being where California is,” Carole Walker, the 
executive director of the Rocky Mountain Insurance Information 
Association, told CBS.

For homeowners who can’t find fire insurance, California has an insurer of 
last resort, known as the Fair Access to Insurance Requirements, or FAIR, 
plan. The FAIR plan was established by the state, but it is operated by 
private companies, which pool the risks. Florida, Louisiana, and Texas 
have similar entities, and Colorado recently established one. As insurers 
have pulled out of California, the number of policies written by the 
state’s FAIR plan has risen steeply; just since late 2023, it has grown by 
more than forty per cent. Meanwhile, the value of the residential 
properties insured by FAIR has risen to more than four hundred and fifty 
billion dollars, triple what it was in 2020. This has led to worries that, 
with all the damage from the current fires, the plan will go broke.

“I’m concerned that we’re one bad fire season away from complete 
insolvency,” Jim Wood, then a California assemblyman, said back in March. 
Were FAIR unable to meet its obligations, the state’s insurance companies 
would have to make up the difference. They, in turn, would pass on at 
least part of the cost of this assessment to consumers, further driving up 
prices.

All of which raises the question of what role insurance can—and 
should—play in a warming world. As the dangers of climate change in 
California have increased, FAIR has absorbed much of the risk. This has 
been a boon to homeowners in the most fire-prone neighborhoods, but it 
could prove a burden to other state residents if they end up picking up 
the tab.

“The bet on the FAIR Plan is the state’s decision to do whatever it takes 
to keep property markets working, even in risky areas, and to mute the 
price signal of riskiness,” Susan Crawford, a clinical professor emeritus 
at Harvard Law, wrote in a recent Substack post. “That bet may now be 
being called. No one knows what will happen next.” ?


-- 
November 5, 2024 - Congratulations President Donald Trump.  We look 
forward to America being great again.

The disease known as Kamala Harris has been effectively treated and 
eradicated.

We live in a time where intelligent people are being silenced so that 
stupid people won't be offended.

Durham Report: The FBI has an integrity problem.  It has none.

Thank you for cleaning up the disaster of the 2008-2017 Obama / Biden 
fiasco, President Trump.  

Under Barack Obama's leadership, the United States of America became the 
The World According To Garp.  Obama sold out heterosexuals for Hollywood 
queer liberal democrat donors.