LA Fires Could Boost Home Insurance Premiums Statewide

The firestorm that torched thousands of homes in Los Angeles will likely hit Bay Area homeowners with higher insurance premiums and fewer choices.

The devastation from the foothills to the beaches of L.A. County could translate to fewer coverage options and fewer policies written for homeowners in the Bay Area and beyond, with higher rates, the San Jose Mercury News reported, citing industry experts and watchdogs.

The wildfires driven by nearly 100 mile-an-hour winds that reduced more than 9,000 structures into rubble come on the heels of reforms meant to stop insurers from fleeing the state, after a decade of increasingly destructive wildfire seasons.

But the changes are yet to take full effect.

And experts say billions of dollars in expected insurance claims from the L.A. conflagrations could throw an already faltering home insurance market into deeper turmoil.

“There are going to be some companies that are severely hit by the L.A. wildfires,” Nancy Watkins, an insurance expert and actuary with Milliman, told the Mercury News. “That could create a situation where, in the short term, they have to get rid of some of their existing policies.”

Consumer advocates say the deadly fires could mean higher premiums for policyholders in nearly every corner of the state.

“I’m certain that the insurance companies will demand extraordinarily higher rate increases,” Harvey Rosenfield, founder of Los Angeles-based Consumer Watchdog, an advocacy group, told the newspaper.

Insurers have already hiked rates and ended hundreds of thousands of policies statewide. An insurance crisis stoked by the latest fires would severely impact the real estate market.

Not only would homeowners continue to see rate hikes and lose coverage, according to the Mercury News, but families that struggle to find insurance couldn’t take out a mortgage to buy a house.

In areas at extreme fire risk, from the Santa Cruz Mountains to rural pockets of Northern California, fewer buyers could mean falling home prices, straining local tax bases and hampering a statewide rebound from a post-pandemic economic slump.

The California Department of Insurance this week announced an emergency declaration by Gov. Gavin Newsom that would protect homeowners in the immediate area of the fires from losing their insurance due to wildfire risk for a year.

But it did not respond to questions about the fires’ impact on the broader insurance market.

In recent weeks, the agency has finalized reforms to entice insurers back to the state, stabilize the broader market and ensure fewer homeowners are dropped from their plans.

Under the new rules, insurers will soon be allowed to raise rates based on the growing threat of climate change, as well as pass along more of their costs incurred during catastrophic disasters to their customers.

In exchange, insurance companies are supposed to write more policies in fire-risk areas where many homeowners have lost coverage.

Consumer advocates maintain the deal will do little to benefit struggling homeowners, singling out the rate-setting change that allows companies to use forward-looking “catastrophe modeling” programs to calculate premiums.

They claim this will enable insurers to raise rates through an opaque process they liken to a “black box,” according to the Mercury News.

While state insurance regulators must still approve rate increases, advocates say companies will be emboldened to hike homeowners’ rates to offset their losses from L.A.

— Dana Bartholomew