Possible Collapse Of CA Insurance Markets At Hand; Bonus - State Farm Dropped 1,000+ Palisades Policies In July 2024
In July, as California sweltered through its hottest month in history, the state’s biggest insurance company stopped providing home insurance to more than a thousand homeowners in the Pacific Palisades neighborhood of Los Angeles. Tucked into the fire-prone hillsides on the city’s Westside, the neighborhood was one of a growing number in California deemed too risky to insure, State Farm President Denise Hardin wrote in a letter to regulators. The carrier did not renew nearly 70 percent of policies in the Palisades Zip code, leaving residents increasingly reliant on a state-backed “insurer of last resort” known as the FAIR plan. Pacific Palisades had become one of the most fire-exposed areas the plan covered, with nearly $5.9 billion in assets at risk of going up in flames.
Now, the catastrophe that residents, insurers and regulators feared has come to pass. Thousands of homes and businesses in Los Angeles have been reduced to ash since Tuesday as five separate fires rage out of control. Many are in the Palisades, one of the city’s wealthiest neighborhoods — and one of the most susceptible to wildfire. Though the full financial toll of the disaster is unclear, experts are warning the losses could overwhelm California’s already fragile insurance market, potentially worsening an exodus of carriers and destabilizing the state-backed system.
“We’re marching toward a future where insurance is not going to be available or affordable,” said Dave Jones, who served as California’s insurance commissioner from 2011 to 2018 and now directs the Climate Risk Initiative at the University of California at Berkeley’s School of Law. This week’s fires began at a time when home insurers were beginning to feel better about their future in California, said Carolyn Kousky, associate vice president for economics and policy at the Environmental Defense Fund. After years of private insurers scaling back coverage in the state, officials last month announced new regulations that would allow companies to increase rates and use models that factor in future climate risks. In exchange, they would have to sell policies in fire-prone areas. “There was a lot of optimism the market in California was really turning around,” Kousky said. “The fires raise the question: Is that enough when we’re in an environment of increasing risk?”
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The only option for many homeowners became the Fair Access to Insurance Requirements (FAIR) plan: a state-mandated fire insurance association established in 1968 to fill the gaps where private insurers were unwilling to issue policies. Every company operating in California is required to contribute to the plan’s expenses in proportion with its market share in the state. Though the premiums offered by the FAIR plan are typically higher than those from private insurers, participation in the plan has more than doubled in the past four years. In Pacific Palisades, the number of FAIR plan policies increased 85 percent from 2023 to 2024 — growing at roughly twice the statewide rate.
The association does not make its finances public. But in March, FAIR plan President Victoria Roach testified that the plan was dangerously overextended — accountable for more than $300 billion in potential losses, with just $200 million in “surplus” available to cover those costs. “We’re one bad fire season away from complete insolvency — it feels like a big gamble in many ways,” Assembly member Jim Wood, a Democrat from Sonoma County, told the Los Angeles Times last year.
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https://www.washingtonpost.com/climate-environment/2025/01/09/california-wildfire-palisades-homeowners-insurance/
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