LA Wildfire Crisis: Home Insurers Face Backlash for Dropping Policies

As a devastating wildfire consumed over 1,000 homes and other structures in Los Angeles County this week, there’s growing anger directed at insurance companies for their recent decisions to cancel homeowner policies throughout California, including in regions severely affected by the ongoing fires.

Over 1,000 homes, commercial properties, and various structures have been destroyed in the Palisades, Hurst, and Eaton fires—with the latter claiming two lives, as reported by The Los Angeles Times on Wednesday. Propelled by strong Santa Ana winds and extremely dry conditions, none of these fires had been contained by Wednesday afternoon, according to the California Department of Forestry and Fire Protection (CAL FIRE).

Mandatory evacuation orders have been issued for upwards of 80,000 people. Los Angeles County Fire Chief Anthony Marrone reported on Wednesday morning that a significant number of individuals who chose not to evacuate have sustained severe injuries. Additionally, hundreds of thousands of locals are currently without electricity.

On Wednesday afternoon, CAL FIRE reported that the Palisades Fire alone had engulfed over 11,000 acres, while the Eaton Fire had spread across more than 10,600 acres, and the Hurst Fire had consumed over 500 acres. Firefighters contending with the Palisades Fire faced issues with dry hydrants.

In the face of escalating extreme weather conditions due to the climate crisis, insurance firms have been criticized for dropping policies and withdrawing from states that are at a high risk for wildfires or hurricanes.

State Farm, a major insurer in California, disclosed last year that it would not renew 30,000 home insurance policies throughout the state, including numerous policies in areas currently battling wildfires, citing prevention of “financial failure” that could have broad market impacts.

Other insurance providers have followed suit, forcing their clients to rush to secure new coverage.

Michael DeLong, a research and advocacy associate at the Consumer Federation of America, told Common Dreams on Wednesday that while climate-related extreme weather has increased the insurance risks in many regions, insurers are also cancelling policies to capitalize on the growing risks and costs, attempting to undermine consumer protections.

“They have been actively opposing Proposition 103—a voter-approved initiative from the late 1980s that established significant consumer protections in insurance,” he added. “This has significantly helped consumers by keeping rates manageable, but insurers are not fans of these regulations and are looking to weaken them.”

In a Wednesday conversation with Common Dreams, Jamie Court, president of the Los Angeles-based Consumer Watchdog, pointed out that “under Prop 103, we were able to challenge excessive rate increases, saving $1 billion last year alone.”

However, advocates are concerned that California Insurance Commissioner Ricardo Lara’s new “sustainable insurance strategy” could make challenging rate increases more difficult and lacks transparency and public engagement.

DeLong noted that Lara is “permitting the net cost of reinsurance to be passed on to consumers.”

Reinsurance, where insurers transfer risk to another company to reduce losses, has been regulated more leniently recently.

“Up until a few weeks ago, California regulations prevented the costs of reinsurance from being passed to consumers, but that has changed,” DeLong explained. “This is likely to lead to higher prices for consumers, which is concerning despite claims that it will stabilize the industry.”

“Another change is the approval for the use of catastrophe models in insurance,” DeLong continued, referring to a tool that assists insurers in evaluating potential financial effects of disasters. “While other states have allowed their use, California had resisted until now. Although these models can be useful, many are flawed, based on incomplete data and lack transparency.”

Court also criticized the opacity of catastrophe models, which he said “can be manipulated to justify any rate they wish to impose.” He also slammed Lara’s plan to allow insurers to increase rates in exchange for a supposed commitment to insure more homes in wildfire-prone areas.

Lara announced last year that “insurance companies will cover at least 85% of their statewide market share in areas at high risk for wildfires,”

However, Court warned that there’s no guarantee that insurers will actually expand their coverage in these high-risk areas.

“When you delve into the details, there are significant loopholes,” he stated. “Insurers are supposed to commit to an 85% coverage rate within two years—or they may increase coverage by just 5% from their current levels. If they’re starting from zero, that’s only a 5% increase. It’s completely inadequate.”

As obtaining insurance becomes increasingly challenging, hundreds of thousands of California homeowners have turned to the state’s FAIR Plan, a last-resort insurer, which has seen a more than twofold increase in policy issuance since 2020.

“If the FAIR Plan is your only option, take it,” DeLong advised. “Meanwhile, you should contact the Department of Insurance to demand consumer protection and oppose unjust rate hikes.”

“You can also implement risk mitigation strategies, such as clearing vegetation around your home, upgrading to a Class A roof that is highly resistant to fire, or taking steps to prevent embers from igniting fires on your property,” he suggested. “These measures can be costly, and not everyone may be able to afford them. California has started to offer grants to help consumers undertake these measures, and this support should be expanded.”

“There is some positive news,” DeLong mentioned. “The California Department of Insurance is developing a public catastrophe model that would include consumer input and rely on fair, transparent data.”

“However, it will be at least a couple of years before this is realized,” he added.

Court agreed, noting, “It’s a long way off, and it’s not even mandatory for companies to use; it would be supplementary. While it’s a step in the right direction, it needs to be much more aggressive.”