California’s slow-motion wildfire insurance collapse is forcing politicians to take a stand.
Wildfires have cost insurance companies billions in dollars. Legislators and regulators, as well as Gov. Gavin Newsom is preparing for some pain in the political arena. Insurance rates may rise as part of a deal to bring insurers back into the state and prevent more from departing.
Susan Rubio, D-Baldwin Park, chairwoman of the Senate Insurance Committee said: “We are all on the exact same page, in an odd way.”
A number of lawmakers are hoping to have a bill introduced by the middle of September to help it move quickly through the legislative session. Insurance companies could charge a higher fee to cover the most risky properties and use rate models that are based on future natural disasters.
If the bills are passed, consumer advocates that have had enough influence on the political scene to keep rates in their state among the lowest of the nation could take aim at elected officials.
Experts believe that it is time for homeowners to be exposed to the real costs associated with living in areas prone to fire.
Rubio stated that “everything was on the table and I didn’t rule out anything.”
As the market has been shrinking, there have been dramatic moments. Wildfires, inflation and disasters around the world prompted State Farm to pull back on their insurance offerings this spring. According to sources in the industry, insurance options have decreased by 20 percent since last year.
Rubio stated that “there is an alarm going off now.” We are facing a serious crisis, and we must act.
Most of the problem comes from rural property owners who are often in Republican districts and live in relatively weak, powerless areas.
Pressure is increasing as non-renewals are spreading into the suburbs of Southern California. More and more legislators are affected.
Assemblymember Jacqui irwin, D-Thousand Oaks, said that her sister’s condominium fees, in Agoura Hills north of Los Angeles went up hundreds per month, after they were dropped from an initial plan.
Following a cancellation by her insurer, Senator Marie Alvarado-Gil, D-Jackson, is now on FAIR Plan, a state-mandated insurer-led plan.
She said in a spring hearing, “I am constantly receiving feedback from my constituents regarding the impact of wildfires and the insurance industry on their home. I cannot go another fire season with out finding solutions to help our business owners, homeowners, renters and farmers.
Three people who are close to the discussion, but whom POLITICO has agreed to not name due to ongoing discussions, say that Newsom and Insurance commissioner Ricardo Lara also participate in these talks. Lara, in response to a hearing held last month said that he will “pursue legislation” if needed to permit forward-looking rates models.
As momentum builds towards a final deal, consumer advocates say that the public will be less than pleased with rate increases.
Harvey Rosenfield is the founder of Consumer Watchdog, a consumer advocate nonprofit. “If people are shocked by a rapid increase in homeowner insurance premiums, they may rebel,” he said. Voter Revolt was passed in 1988 by a large number of voters who did not want to see their insurance premiums increase 30 or 40%.
First time in history, there are other participants at the table. California Building Industry Association CEO Dan Dunmoyer stated that homebuilders are losing jobs because insurance companies are unwilling to pay for them, or charge rates which make it uneconomical.
The FAIR Plan is the last resort insurer for the state. Its coverage should be expanded to include multi-family housing, such as condos. All insurance premiums would need to increase to compensate.
Dunmoyer acknowledged that the rates were likely to rise but said that consumers are better off if they leave it up to small insurers who are not regulated by state.
He said it was better to have unregulated insurance companies charging five to six thousand times more than if they were regulated. It’s hard to make a political decision, but the consumer is better off.
Insurance companies hope that a climate-change deal includes the option to set rates based on projected more frequent and severe fires, storms and other weather events. California is the only state to not allow for forward-looking modeling. Industry representatives claim that this will enable insurers to recover increased payouts due climate catastrophes through charging higher rates.
Rex Frazier is the CEO of Personal Insurance Federation of California. He said lawmakers were open to rating tools that incorporated climate science.
Some argue that insurers will not stay in California if they can raise their rates on the basis of climate predictions. Farmers Insurance, for example, pulled out of Florida due to the hurricane-related cost.
In June, Florida was one of ten states that sued the federal Government to prevent the new flood insurance models from being used. The states claim that the new models would increase premiums, and make people move from homes they cannot afford.
Dave Jones, a former California Insurance Commissioner and Director of the Climate Risk Initiative at University of California Berkeley Law School, says Florida insurance companies are permitted to do anything California insurers ask for. California, and the United States as a whole, are moving steadily towards an uninsurable present.
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