Longtime So Cal resident Charles Carr is a nationally published journalist and playwright. His award-winning Southpaw column has appeared in college textbooks published by Macmillan, St. Martin's Press, Bedford, and others. Charles writes Southpaw for his hometown newspapers, The Times-Advocate and The Roadrunner.

LA's wildfire disaster will be expensive for every Californian

It's a one-two punch: ever-frequent and more severe natural disasters and prohibitively expensive insurance coverage. That's if you can get coverage at all.

According to the most recent data from the California Department of Insurance, more than 2 million homeowners had their fire coverage dropped by traditional insurance companies between 2020 and 2022 -- more than half a million in LA County alone, a situation which will almost certainly worsen after this month's horrific wildfires.

For decades insurers in California have avoided areas of the market they deem to be higher risk, particularly from wildfires. In 1968 frustrated lawmakers created the California FAIR Plan (Fair Access to Insurance Requirements), a privately run insurer which provides fire coverage for residents and businesses unable to secure a policy on the private market.

Created by the state but not funded or backed by it, the FAIR Plan relies solely on private insurers and homeowners themselves to cover claims. Billing itself as "insurer of last resort," FAIR Plan policies typically have higher premiums than traditional private insurance and offer less coverage. The FAIR Plan does not provide liability or personal property, resulting in consumers often paying two premiums: one to CA FAIR for fire insurance and one to a traditional insurer for everything else, policies which most major companies are still willing to write.

The way the FAIR Plan works, if an insurance company wishes to sell policies in the state, it must also agree to financially support the FAIR Plan if the plan runs out of money following a catastrophic disaster. Insurers accept the risk in exchange for the ability to opt out of writing high-risk policies during relatively normal times. 

As a result of mounting natural disasters and an increasingly reticent insurance industry, demand for the FAIR Plan has skyrocketed, up 61% this year and more than 300% over four years ago. For commercial customers it's even higher, over 450% over four years.

In March 2024, California's Insurance Commissioner Ricardo Lara enacted new rules, dubbed the Sustainable Insurance Strategy, which he says will curb costs and re-incentivize insurance companies. According to the new rules, major insurance companies would be required to write policies in high-risk areas equivalent to no less than 85% of their statewide market share. Said Lara, "For the first time in history we are requiring insurance companies to expand where people need help the most... With our changing climate we can no longer look to the past... The cost for insurance has skyrocketed. Inflation is even more of a factor than climate change. We are being innovative and forward-looking to protect Californians' access to insurance."

The Insurance Information Institute, the insurance industry trade group, supports the Sustainable Insurance Strategy, contending it is the best solution to encourage its members to offer coverage to the fire-prone parts of the state.

But the new rules have also generated the criticism that their implementation will cause insurance costs for all homeowners to soar.

The non-profit advocacy group Consumer Watchdog (consumerwatchdog.org) estimates that insurance rates could rise 40% to 50% as a result of the change, pointing to state approved rate hikes within the past year of 25% or more for many of the major national insurers, such as State Farm, Farmers and Allstate, long before this month's LA wildfires.

The industry's own statistics show that it has had extremely profitable years in California in the past but massive losses, primarily as a result of the 2017 and 2018 wildfires, wiped out most or all of those gains.

"This new policy is guaranteeing higher rates but not necessarily access to coverage," said the group's executive director Carmen Balber. "The commissioner has granted the insurance industry what it wants. There are so many loopholes and lack of teeth in the rule that homeowners won't see expanded coverage for a very long time, if at all... The commissioner could waive the 85% commitment entirely for any insurer that claims it cannot meet it. The bill's other provisions to facilitate unjustified rate hikes mean consumers will be unable to afford the policies insurers are willing to sell."

US Representatives John Garamendi (CA-8) and Zoe Lofgren (CA-18) are also critical. "The proposed Sustainable Insurance Strategy seems to suggest dramatic changes to the Commissioner's regulatory power that may result in a diminution of the authority granted by California voters and your ability to create a stable insurance market in our state," they wrote in a letter to Commissioner Lara. "Proposals [in the new rules] could threaten the important consumer protections established in Proposition 103 and in place since 1988."

In a press conference this past Friday, Lara urged patience. "Once the fires are brought under control, we will get data directly from the insurance industry and the FAIR Plan about claims filed. We are focused on maintaining the FAIR Plan's financial health while getting people back to the regular market, where they belong." He went on to assure concerned homeowners that FAIR will be able to handle the claims that this week's fires will generate and "is actively serving customers who have made claims. The FAIR Plan has payment mechanisms in place... to ensure all covered claims are paid."

Moving forward, all of us must keep an eye on the insurance industry and not allow it to engineer an environment in which it serves only the customers it wants over those who need it. At the same time, we must acknowledge that California indeed does have higher risk areas and learn how to deal with them, in much the same way Southern states are currently learning to deal with increasingly severe hurricanes and tornadoes. And if they're not, they will be soon.

It's a new fact of life for a new reality: It's going to cost all of us more -- perhaps a lot more -- to continue to protect this country we cherish.