Millions of people in fire-ravaged California risk losing home insurance

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A California moratorium on insurance in areas threatened by wildfires expired on Saturday, putting 347,000 homes in Pasadena and other communities in the Los Angeles foothills at the mercy of the market.

Up to 2.4 million households are at risk of losing their protection in 2021 after the expiration of one-year grace periods, although further disasters may extend their shields. In total, 18% of households in the state could actually lose their protection, the largest group since the moratorium law came into effect three years ago.

“We’re going to foot the bill for climate change one way or another, and it’s just a matter of how we allocate that cost,” said David Russell, co-director of the Center for Risk Management and Insurance at Cal State. Northridge. “What California politicians are trying to do is change the way we do business. They buy time, hoping they get a break.

Climate change has been tough on the world’s fifth-largest economy: forest fires fire nearly 4 million acres last year and over 2 million so far this year; the Dixie and Caldor fires, two of the largest, are still not fully contained.

Fires in 2017 and 2018 only annihilated over a quarter of a century of underwriting profits for the California insurance market, according to Milliman inc., a risk assessment company. While insurers rushed to recalibrate risks, consumers were shocked by canceled policies and skyrocketing rates.

In 2018, after the Campfire destroyed more than 18,000 buildings, Sacramento lawmakers have prevented insurance companies from canceling homeowners’ policies in or near wildfire areas for 12 months after the day of an emergency declaration. The idea was to protect consumers after traumatic episodes and give them time to make their homes more fire resistant. This, ideally, would prevent higher rates or cancellations.

“Even when these moratoriums end, they have given people time to make their homes safer,” California Insurance Commissioner Ricardo Lara said in a statement to Bloomberg, an argument he made to many. times. “I expect insurance companies to take this into account.”

It is difficult to say whether this is wishful thinking or an effective policy. Even before the law was enacted, California’s highly regulated market saw insurers leave the state or refuse to underwrite new policies. In 2019, the last period for which information was available, the state recorded a 31% increase in non-renewals. During the same period, there has been a 36% increase in the number of homeowners using the California FAIR Plan, the state’s straightforward alternative for those who cannot get insurance in the traditional market.

However, the real effects of the moratorium law won’t be known for some time, thanks to late statistics, said Cody Webb, consulting actuary at Milliman. Figures on insurance cancellations in 2020 will not be released by the Commissioner’s office until October. It may take another year to determine how many of the 2.4 million households coming out of coverage this year will lose their insurance.

And thanks to the multiplication of fires, even more households are entering the program: at least 350,000 this year, some for the second time.

Mark Sektnan, vice president of state government relations for the American Property Casualty Insurance Assn., Said businesses are “learning to live with” the moratorium. He said some insurers are coping with “filing serial increases of 6%” each year to close the risk gap.

Homeowners and their communities can also better protect themselves from fires, as the regulators hoped, Sektnan said.

He pointed to a fire that swept through Lake Tahoe this summer. After the devastating fires of 2007, the community was particularly aggressive in terms of forest management.

“Firefighters will tell you that when the fire reached this area, the flames went from 20 feet in the air to about five feet in the air,” Sektnan said. “We can’t prevent forest fires, but we can make sure they are less intense, which increases the ability of properties to survive.”


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