LA Fires Bring More Attention to California’s Homeowners Insurance Crisis

State Farm dropped 1,600 insurance policies from Pacific Palisade homes last July, the location of one of the ongoing fires in Los Angeles that have destroyed more than 12,000 structures. Los Angeles is the second most expensive city in the United States and sixth most expensive in the world. The Pacific Palisade neighborhood has a median home value of $3.1 million.

Last year, State Farm removed 70% of its policies from the Pacific Palisade region, which required the residents to join California’s “Fair Access to Insurance Requirements” (FAIR) plan. In 2022, the FAIR plan cost the average California homeowner $3,200 per year compared to a traditional plan of $1,480 for a $300,000 property. 

The FAIR plan only covers damage from fire, lightning, internal explosions, and smoke. Typical homeowners insurance is comprehensive and also provides protection for theft, liability, water, and wind damage. The FAIR plan is not adequate coverage for many mortgage lenders, which would require homeowners to obtain two separate insurance policies to satisfy the bank’s requirements.

The FAIR plan is also capped at $3 million in coverage, which is under the value of many homes that have burned down in the ongoing LA fires. Hilary McLean, a spokesperson for the program, said it may take years to figure out the total losses from the fires. McLean said there has been misinformation suggesting many of those insured by the FAIR plan will not have their claims paid. McLean said “The FAIR Plan has payment mechanisms in place, including reinsurance, to ensure all covered claims are paid.”

The damages from the LA fires are estimated to cost between $250 and $270 billion, which is higher than the estimated total cost of Hurricane Helene. During a government committee hearing last year, it was revealed that the FAIR plan has approximately $700 million in cash on hand and an additional $2.5 billion in reinsurance.

It is estimated that 20% of the homes in the Palisade region are insured by the FAIR plan. As of September, there were an estimated 451,000 California homes insured through the program.

State Farm isn’t the only insurance carrier to not renew policies for customers in California. Since 2022, there have been at least 11 insurance companies that have stopped renewing policies due to wildfire risk and the inability to get reinsurance policies. Reinsurance is a policy the insurance companies take to hedge their risk against large claims and most insurance companies utilize some type of reinsurance.

Allstate, Farmers Insurance Group, Nationwide, and Travelers are among the insurance companies that have significantly reduced coverage in California or left the state completely.

The increase in California wildfires is one aspect of the insurance company exodus in the state, but it is heavily fueled by Proposition 103, which was passed in 1988. The law prevents insurance companies from raising insurance rates by 7% or more without triggering a review process. That process can take months and insurance companies have decided to stop renewing policies rather than risk substantial losses from wildfire claims.

Under Proposition 103, the Rate Regulation Division has 60 days to review and approve rate increases. They may request a hearing, but an intervenor can also request a hearing within 45 days of a public notice. When a hearing is required, it must be convened within 180 days or six months. Sometimes this process is delayed even further and insurance companies have decided to leave the state instead of moving forward with a lengthy review process.

Governor Gavin Newsom was working on a plan last summer to reform the home insurance industry in the state, but Proposition 103 is still the law. Insurance Commissioner Ricardo Lara issued a moratorium on non-renewals and cancellations for insurance companies in the Palisade and Eaton wildfire-affected areas. Lara said “I am using my moratorium powers to prevent insurance companies from canceling or non-renewing policies in wildfire-impacted areas, so people don’t face the added stress of finding new insurance during this horrific event. I am working on all fronts to make sure wildfire victims get the benefits they are entitled to, and they get it as soon as possible.”

The HighWire covered the LA fires last week as Host Del Bigtree spoke with Steve Slepcevic regarding the disaster response. Bigtree discussed the insurance problem and his own experience with losing insurance in a wildfire-prone area. Since the majority of homeowners have a mortgage with the bank, the insurance requirements can be devastating when it is difficult to find an affordable plan.

Bigtree made a “hypothesis” on last week’s show that the California insurance crisis is connected with the World Economic Forum plan. Bigtree aired a video that shows “8 predictions for the world in 2030.” The video said “You’ll own nothing and you’ll be happy. Whatever you want, you’ll rent and it’ll be delivered by drone.”

Bigtree said, “I’ve been talking about all the global power brokers, all of the owners of the global companies that own your banks, own your insurance companies have all been gathering in Davos with this great new plan especially for america. You will own nothing. Everyone will rent.”

Bigtree continued, “If you start pulling people’s insurance or underinsuring their home, saying we’re no longer because of climate we can’t give you the whole value of your home… If they underinsure you and you haven’t paid off that home, if you’re not one of those lucky people who has bought your home outright, the bank now hits you with a giant fee until you can find insurance to cover the value of your home… Guess what, you’re owning nothing. You’re renting. How many of these homes will not be able to be rebuilt in California, except for the very wealthy?”

Bigtree added, “How many, once they are, will be underinsured, which no one will be able to do it unless you can afford to just pay for that thing in cash? Are the only owners of homes in the future of the United States of America, and I guess the world, are just the..completely that 1% affluent? Is this a part of how we end up being renters?”