Insurance companies have not been able to raise the rates to insure homes in high fire severity zones.
State Farm Insurance in a March 2024 statement announced that it would not renew homeowners insurance for 30,000 homeowners, rentals and businesses and 42,000 apartment owners policies in California.
“These actions are California-specific,” the notice said, and cited inflation, catastrophe exposure, reinsurance costs and limitations of working within decades-old insurance costs.
Those living in the following California zip codes most likely to be affected are: the 90272 Zip Code, there are currently about 2,342 policies, non-renewals are set at 1,626 or about 69 percent. In the 90049 area, the current policy count is 2,114, and nonrenewals will number 1,301 or 61.5 percent.
In Brentwood, about 61.5% of State Farm policies won’t be renewed. In Bel-Air, that percentage increases to 67.4% percent click here.
Since 2022, seven of the 12 largest home insurance companies in California have stopped writing new policies, others are no longer renewing.
A Marquez resident told CTN, “I just can’t afford any more insurance. Mine was raised 67% with State Farm. I had to reduce my coverage by raising my deductible, lowering my personal property and reduce my dwelling, which allowed me to reduce my bill by $1,700. I’m paying more for less coverage.
“Many other communities such as Malibu, Calabasas and areas in the valley are having the same issues,” the resident said. “Just because I live in the Palisades doesn’t mean I can afford it. I bought my home 50 years ago and never put in a claim. I will probably need to sell my home and move out of the area.”
A second resident, also in the Marquez area had just heard from her agent on April 2, that in March 2025, her homeowner’s insurance will not be renewed. “I won’t be able to live here,” she said.
Climate change has been blamed, but because climate change affects the world, why are Californians having trouble obtaining homeowner insurance?
State Farm wrote that California needs to have insurance reform in the 1) rate application process, 2) catastrophe modeling and 3) reinsurance costs.
RATES AND PROPOSITION 103:
The current homeowner insurance troubles can be traced back to Proposition 103 that passed in 1988 to control auto insurance rates. That prop, which also affected property, life and other types of casualty insurance coverage, required that rate increases be approved by the state Insurance Commissioner, which was to be elected by the people.
Prop. 103 implemented a 6.9 percent solution. If an insurer wanted to increase a rate by 7 percent or more, consumer advocates could become “intervenors” and challenge the rate. That process could take several years or more to raise rates and insurers were required to pay the intervenors.
Property insurers could and did ask for 6.9 percent, but that often generated insufficient premiums.
According to May 2023 Story in E&E NEWS by Politico “California Scared off Its Biggest Insurer. More Could Follow”) Michael Wara, director of the Climate and Energy Policy Program at Stanford University’s Woods Institute for the Environment said “That [6.9%] worked OK when the real inflation rate was 2 percent or less.”
Wara said that a 6.9 percent rate increase would generate a post-inflation increase of up to 4.9 percent. “Now inflation is 5 percent, so insurers are getting a 1 percent to 2 percent real increase.
“We’re still stuck in the 6.9 [percent] world, which doesn’t contemplate high inflation,” Wara said. https://www.eenews.net/articles/calif-scared-off-its-biggest-insurer-more-could-follow/.
Insurance is being dropped from homeowners in Brentwood, near where the Getty Fire occurred
CATASTROPHE MODELING:
From 2003 to 2022, California wildfires burned an average of 1 million acres a year according to data from the State Department of Forestry and Fire Protection.
California insurers paid $15.4 billion in wildfire losses in 2017 and $13.6 billion in 2018. That meant insurers were paying $1.85 in losses for every dollar of premium earned.
The California Department of Insurance not only inhibits how much insurers can raise rates, but also how they are able to calculate rate changes.
California insurers have been historically unable to incorporate wildfire modeling into rate calculations and are limited to historical data when determining rates. Meaning, they are unable to look at recent wildfire damage to predict future potential costs.
Prop. 103 asks insurers to take on more risk they can compensate for in premiums – and so they have pulled out of California.
REINSURANCE:
Reinsurance is an insurance policy for insurance providers. For example, after a wildfire, if all policy holders file at once that could prove financially disastrous for the insurer. Reinsurance helps the insurer stay in business while paying off claims. Property reinsurance premiums have risen 50 percent from April to July 2023, according to a report from Gallagher Re, a global reinsurance broker.
FAIR PLAN:
For anyone unable to get homeowners insurance, Californians have access to the FAIR plan, which provides minimal coverage, and is supported by California private home insurers, with each insurer’s support tied to the market share.
As more insurance companies have stopped providing coverage, more residents have turned to this plan. In 2018, there were from 126,709 polices. That exploded to more than 350,000 in January 2024. Liability coverage is not available under the FAIR plan and the policy only insures at cash value.
Initially FAIR was supposed to be an insurance program of last resort for homeowners in high-risk areas. With more insurers leaving the state, and more residents signing up, the plan is at risk for insolvency.
California Insurance Commissioner Ricardo Lara is trying to update that plan and to get homeowners off it and back with insurance companies, by doing wildfire mitigations. His plan would permit insurance companies catastrophe modeling and mitigation, and update coverage limits.
SACRAMENTO:
A bill was proposed to entice insurers to return to the state last fall, but it died before formal proposal was submitted. The 2023 legislature ended on September 14, without an insurance update.
Governor Gavin Newsom issued an executive order a week later to improve speed of the rate approval process. The order will allow the California state legislature to draft new rules that will permit insurers to use wildfire modeling in rate calculations.
Ricardo Lara is the California State Insurance Commissioner.
(Editor’s note: President of the Pacific Palisades Community Council Maryam Zar, in conjunction with the Brentwood Community Council, has asked for a meeting hosted by state legislators to answer questions about homeowners’ insurance. If legislators respond, CTN will update.)
Thank you for addressing the concerns we all have.
I appreciate what you wrote!
Best,
Sharon Piehl
I wonder what this implies for the huge property 1/2 way up palisades drive that is supposed to be a home for the aged? Abandoned because of no fire insurance?
The insurance commissioner is in bed with the insurance companies. Recall Lara!
Great article, Sue. One question: You stated that the FAIR Plan only covers cash value. My understanding is that you can get replacement cost value with the FAIR Plan as long as your home is 25 years old or less, or you have replaced your roof in the last 25 years. Is that not correct?
Another coherent, thorough report from Circling the News. It’s easier to blame other entities than to dig for facts. Kudos and thank you for a deep digging article explaining in simple English a complicated subject we all need to understand.
Jo,
I don’t think so, but that would be a question to ask the state. I know they are trying to get everyone to do home “hardening” (fire prevention measures)–
When Richardo Lara was speaking his emphasis was trying to get people off the Fair Plan because there’s worry it will go into insolvency, too.
Sue