Wildfire response: State Farm and other insurers have come under fire for dropping coverage for California
FOX Business’ Cheryl Casone joined ‘FOX & Friends First’ to discuss the insurance crisis in California as wildfires ravage Los Angeles and broader concerns about the industry moving forward.
The deadly forest fires that hit Southern California this week destroyed a significant number of homes after some leading insurance companies pulled policies in the Golden State in recent years due to rising wildfire risks as well as a challenging regulatory environment.
Several ongoing wildfires, including the Palisades Fire and the Eaton Fire, have devastated communities in the Los Angeles areaincluding Pacific Palisades and Altadena. The fires have burned nearly 30,000 acres due to Santa Ana winds, with at least 130,000 people in the area under evacuation orders. The fires killed at least five people and destroyed more than 1,000 buildings.
State Farm, California’s largest home insurer, announced in March 2024 that it would drop coverage on 72,000 home and condo policies over the summer. The company cited inflation, regulatory costs and the increasing risk of disasters as reasons for its decision, and had previously stopped accepting new requests in the state.
Several other major insurers, including All State, Farmers and USAA, have also limited new policies in California in recent years as part of an effort to limit their exposure to policies that carry what they see as undue risk as state regulators have allowed them to charge policyholders. . Similar reasons for escalating risk, high repair costs and rising reinsurance premiums were cited in those decisions.
FIRES IN CALIFORNIA ravaged LOS ANGELES COUNTY, KILLED 5 PEOPLE AND THREATENED THOUSANDS OF HOMES
Plumes of smoke are seen as a wildfire burns in Pacific Palisades, California on Tuesday. (David Swanson/AFP via Getty Images/Getty Images)
This week’s wildfires have drawn new attention to the issue of insurers no longer taking new policies or refusing to renew existing policies in California communities at high risk of wildfires, while entertainment industry figures have called for moves in the wake of the disaster.
James Woods, an actor who owns a house in Southern California area burned by the Palisades Fire, wrote on X that “one of the main insurance [sic] companies canceled all the shelves in our neighborhood about four months ago.”
Actor Rob Schneider criticized State Farm in a post on X, writing: “Fuck you and all your fakes [sic] ads!! You are a bunch of shit for canceling insurance policies on Californians! I will never use State Farm Insurance again!”
A State Farm spokesperson said in a statement to FOX Business: “Right now, our number one priority is the safety of our customers, agents and employees affected by the fires and helping our customers in the midst of this tragedy.”
STATE FARM CANCELS 72,000 HOME INSURANCE POLICIES IN CALIFORNIA: ‘THE DECISION WAS NOT MADE LIGHTLY’
Mapped spread of the Palisade fire. (Fox News)
state California home insurance market has struggled in part because of regulatory limits on how much companies can charge policyholders in premiums, as well as growing exposure to wildfires and other severe weather events that have caused payouts to rise and strained the reinsurance market.
California voters approved Proposition 103 1988, which was intended to protect policyholders from unfair rate increases by requiring insurers to obtain approval from the California Department of Insurance for any increases above 7%. The law also limits rate increases and spreads all increases over a three-year period.
CALIFORNIA WILDFIRES TAKE RAPID REVIEW OF FEDERAL AND STATE RULES HARDING MITIGATION EFFORTS
Firefighters battle the flames of the Palisades Fire in the Pacific Palisades neighborhood of Los Angeles on Wednesday. (Apu Gomes/Getty Images/Getty Images)
While insurers can and do get approvals for larger increases — State Farm secured a 20% increase in home and auto premiums in January 2024 and then requested a 30% increase for home policies last summer — the process can be lengthy, and the size of rate increases approved by regulators may not be enough for insurers to continue offering policies while maintaining their own financial stability.
By limiting insurers’ ability to raise rates to account for increasing risk, it keeps insurance plans artificially low for consumers. This means that insurance companies are faced with a decision between keeping this excessive financial exposure on their books or taking steps to limit their exposure or exiting the market.
The state of California offers what is called the FAIR plan as an insurer of last resort for consumers who could not secure a plan on the private market. However, policies are still expensive and insurers are expressing concerns about the sustainability of FAIR plan growth.
CLICK HERE TO SET FOX BUSINESS IN CRETE
The FAIR plan’s exposure increased by $174 billion, or more than 61%, from September 2023 to September 2024, when its exposure to the residential sector reached $458 billion. The number of housing policies in force under the FAIR Plan increased from 320,581 to 451,799 in that period, while as of September 2020 they increased by 248,902, or 123%.
“The FAIR Plan continues to grow as consumers find themselves without coverage. As a result, we have doubled in size over the past three years,” FAIR Plan President Victoria Roach said at the March hearing. “As the numbers grow, our financial stability comes more and more into question.”
