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12.9.4: California Insurance Crisis

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    By Maureen Leatherberry

    In 2021, my Home Owners Association was presented with one of two choices: purchase 100% coverage for our community at such a rate that our dues would increase five times the current amount or only partially cover our community with a slight rate in dues. As no one could afford the significant increase, we partially covered our structures, knowing we were not in a fire zone. Because of that choice, those in townhomes attempting to move are now struggling to find buyers as lenders refuse to cover loans of partially protected homes. While California does not require homeowners to carry home insurance, lenders do. Also, new and old neighbors are finding it increasingly difficult to find personal coverage as insurance companies abandon the state. To date, the following insurance companies have either left or will refuse to renew in 2024: Merastar Insurance Co., Unitrin Auto and Home Insurance Co., Unitrin Direct Property and Casualty Co., Kemper Independence Insurance Co, Hartford, State Farm, Allstate, and Farmer's Insurance, American International Group (AIG), Chubb, Liberty Mutual, Travelers, Tokio Marine, and USAA.

    In 1988, Proposition 103 was passed, limiting how much insurance companies could increase their rates. When the law was enacted, insurance companies had set rates based on information from the past 20 years. They were then locked into at most 7% increases per year unless given special permission by the State. As inflation and construction costs increased, the insurance companies' profit margin was decimated. Finally, in 2003, thanks in part to rapid climate change, fires have grown increasingly more significant and costly, with the five largest fires in California history occurring in 2020. In response to the inability to recoup losses by raising rates to match the current situation, insurance companies are leaving California, which leaves homeowners partially or entirely unprotected. Without state legislative intervention, there may come a point in which insurance will either be so expensive that no one can afford coverage, such as the California FAIR Plan, a plan of last resort, or there will be no insurance companies to offer coverage.

    The California government has attempted to address the increase in wildfires and the insurance crisis. The Forest Management Task Force provided a wildfire and forest resilience plan in 2021. One of the most prominent suggestions was to increase controlled burns to reduce fuel build-up in forests and prevent the number of uncontrollable fires. In 2022, Governor Newsom put forth the California Climate Commitment. A $2.8 billion investment was included in this commitment for new technology and equipment to fight wildfires. In 2023, the legislation had the insurance crisis on its agenda but failed to pass any bills. As a result, the Commissioner of Insurance was tasked with providing solutions. These solutions were activated in the form of an Executive Order written by Governor Newsom. The Commissioner’s developed new rules are not expected to take effect until 2025 or 2026. These rules include better management of lands and watersheds, funding and grants for using fire-resistant materials and vegetation management, updating tax codes, and updated insurance rules. Unfortunately, some require legislation, and lawmakers are conflicted about the best action for all parties involved.

    While it feels like this is only a California issue, other states are also facing insurance crises. Florida is facing such a crisis because of hurricanes and wind damage. A proposed solution is to move to a separate wind insurance coverage similar to Texas's wind insurance and California's earthquake insurance coverage. In Connecticut, they are attempting to force "insurance companies that enable fossil fuel projects foot bill for climate disasters" (Humphreys). Another solution requires "insurance firms to hold substantially higher capital reserves to remain solvent following a catastrophe" (Bjoern et al. 169). While a logical solution, it would require a recall of California’sProposition 103 allowing insurance companies to increase their rates as needed and possibly to unrealistic amounts like what is happening in Florida. Finally, a controversial solution would be to create a federal home insurance program similar to the Affordable Care Act for personal health insurance. This reasonable solution, primarily as the insurance risks would be spread over the entire country, would be impossible to pass with our current government situation.

    Regardless of the solution or solutions, they must be done swiftly. Homeowners need relief from the crushing rates imposed to protect their homes and insurance options to protect what is most Californians' most significant investment. Without government intervention, this crisis could exasperate the home crisis as lenders refuse to extend loans because insurance companies refuse to provide coverage.

    Works Cited

    Begert, Blanca. "California Insurance Commissioner annoucnes agreement on wildfire coverage." Politico, 21 September 2023, 00117488. Accessed 15 April 2024.

    Bjoern, Hagenddorff, et al. “The Impact of Mega-Catastrophes on Insurers: An Exposure-Based Analysis of the U.S. Homeowners' Insurance Market.” Risk Analysis, vol. 53, no. 1, 2015, pp. 157-173. EBSCOhost Business Source Elite. “California Climate Commitment.” California Governor mitment.pdf. Accessed 14 April 2024.

    “California Homeowners Insurance: Get a Quote.” Progressive, Accessed 14 April 2024.

    “California's Wildfire and Forest Resilience Action Plan: Recommendations of the Governor's Forest Management Task Force.” California Wildfire and Forest Resilience Task Force, 2021, enceactionplan.pdf. Accessed 15 April 2024.

    Christopher, Ben. “California insurance: Can this plan fix crisis?” CalMatters, 21 September 2023, Accessed 14 April 2024.

    Darmiento, Laurence. “Why are State Farm and others leaving California's home insurance market? Answers for beleaguered homeowners.” Los Angeles Times, 29 March 2024, nt-wrong-whats-being-done-to-fix-it-and-how-homeowners-can-help-themselves. Accessed 14 April 2024.

    Frausto, Maria. “California's Climate and Insurance Crisis: Uninsurability Meets Industry Greed.” Center for International Environmental Law, 3 April 2024, Accessed 14 April 2024.

    Frausto, Maria. “California's Climate and Insurance Crisis: Uninsurability Meets Industry Greed.” Center for International Environmental Law, 3 April 2024, Accessed 14 April 2024.

    Friedlander, Mark. “California FAIR Plan Insurance: What It Is and How It Works.” Bankrate, 25 March 2024, ia-fair-plan-insurance-explained. Accessed 14 April 2024.

    Friedlander, Mark. “California FAIR Plan Insurance: What It Is and How It Works.” Bankrate, 25 March 2024, ia-fair-plan-insurance-explained. Accessed 14 April 2024.

    “Home/Residential Insurance.” California Department of Insurance, Accessed 14 April 2024.

    Humphreys, Helan. “Connecticut To Make Insurance Companies That Enable Fossil Fuel Projects Foot Bill For Climate Disasters.” Insure Our Future, 15 March 2024, ssil-fuel-projects-foot-bill-for-climate-disasters/. Accessed 15 April 2024.

    “Insurance In California Is Changing. Here's How It May Affect You.” KQED, 13 November 2023, may-affect-you. Accessed 15 April 2024.

    Izaguirre, Rosmery. “Worst fires in California history: Dixie, Camp and more.” Los Angeles Times, 24 August 2021, ie-camp-and-more. Accessed 15 April 2024.

    Koseff, Alexei. “California insurance: With no deal, what’s next?” CalMatters, 14 September 2023, Accessed 14 April 2024.

    Lara, Ricardo. “RICARDO LARA.” CalMatters, 7 November 2023, a-Letter-to-California-Democratic-Congressional-Delegation-11-7-2023.pdf. Accessed 15 April 2024.

    Lara, Ricardo. “SustainableInsuranceStrategy.” California Department of Insurance, 2023, ategy.cfm. Accessed 15 April 2024.


    O'Hara, Shannon. “Regulating homeowners' disaster insurance through federal intervention: Lessons from the Affordable Care Act.” Duke Law Journal, no. 71, 2022, pp. 943-983. EBSCOhost Academic Search Complete.

    Palm, Iman. “The Hartford announces it won't issue new home insurance policies to California homeowners.” KTLA, 25 January 2024, ce-policies-to-california-homeowners/. Accessed 14 April 2024.

    Palm, Iman. “More insurance companies announce plans to leave California.” KTLA, 13 November 2023, fornia/. Accessed 15 April 2024.

    Sczesny, Matt. “'We have the solution' to insurance crisis, lawmaker says.” WPTV, 7 February 2024, lorida-lawmaker-says. Accessed 15 April 2024.

    Sumagaysay, Levi. “'Prompt action' on fire insurance has yet to help California homeowners." CalMatters, 8 November 2023, Accessed 14 April 2024.


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