Trouble in Paradise – Insurance costs soar

Dark smoke fills the sky as the Camp Fire rages through Paradise, California, on Nov. 8, 2018.Noah Berger/AP

Nearly 6 years ago, on November 8, 2018, a faulty electrical transmission line sparked the Camp Fire in Butte County. The fire quickly spread, consuming 95% of the towns of Paradise and Concow, claiming the lives of 85 people, injuring several others and destroying over 18,000 structures. Since that fateful time, California has continued to see massive, uncontrollable wildfires, consuming over 8.5 million acres of land and causing $18.7 billion in personal and public property damage, the highest in the country! As a result insurance costs soar.

Insurers Leaving California

Unfortunately, decades of forest mis-management have created a landscape that is severely overgrown with massive fuel loads. This situation, along with the continued growth of population in these forested areas has created the “perfect storm” of exposure for insurance companies. Major carriers such as State Farm, the largest property insurer in California, Allstate and The Hartford as well as several other smaller carriers have informed policy holders that they will not be renewing homeowner’s policies in California in 2024. Some policyholders lucky enough to still have coverage have been informed that they can expect rate increases of 20% to 60%. As insurance costs soar, many are left with only the state insurance of last resort.

Last Resort

This “perfect storm” has left property holders in a dilemma of either resorting to the California FAIR Plan, or going without insurance. Although you do not have to have property insurance to own property, most mortgage companies will require property insurance to secure a loan. While created by the Governor and the Legislature, the FAIR Plan is a private association which is controlled by the insurance companies. Although the FAIR Plan only covered about 3% of California residents at the end of 2021, as major carriers leave the State and do not renew policies, that number will quickly grow, adding strain to a program that for many, is a last resort.

California residents could be forced to pay billions of dollars to bail out the state’s insurer of last resort if a major wildfire hits. “We are one event away from a large assessment,” Victoria Roach, president of the California FAIR Plan, told a state legislative committee.

This complex situation is the result of many factors from lack of effective forest management to the impact of Proposition 103 which limits the ability of insurance companies to adjust rates to account for increased risk and inflation. It has taken years to create this “perfect storm” and unfortunately it will take several years and effective action by the Government and current State Insurance Commissioner Ricardo Lara to create a competitive economic environment that is once again, attractive to insurance companies and California property owners.

Ralph Goldbeck

President & Co-Founder

Citizens for Sensible Forest Management

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