INSURANCE PROBLEMS IN CALIFORNIA
FOR THE RECORD
Now that our fire fighters are beginning to gain ground on the fires that have been burning for weeks on end, CAL Fire, and the U.S. Forest Service have provided for us a record of the number of acres burned, structures damaged and destroyed as well as fatalities for 2024. The following totals are just for California:
Acres Burned- 995,829
Destroyed Structures- 1,425
Fatalities- 1
INSURANCE COMPANIES REACTION-
One of the major fallouts from the fires is that several major property insurance companies have said they will either leave California or stop writing homeowner insurance due to the large amounts they will need to expend for claim payments.
Just while working on this article, I received an email stating that Liberty Mutual Insurance will be non-renewing an estimated 17,000 homeowner policies, citing outdated technology for managing dwelling fire protection.
By way of review, the following insurance companies will not be renewing policies in California:
The Hartford
Tokio Marine
American National
Allstate
Farmers
State Farm
Travelers
USAA
Nationwide
AmGuard
Recently, a Farmers spokesperson declined to comment specifically on this situation but said that Farmers regularly reviews its financial exposure and that "when we find risks no longer meet our underwriting guidelines, we inform customers that we are unable to continue offering them coverage."
THE SUSTAINABLE INSURANCE STRATEGY-
Due to a plan developed and put forward by the current California Insurance Commissioner,Consumer Watchdog closely examined what the California Commissioner called the Sustainable Insurance Strategy, which was developed to make it more attractive for insurance companies to continue writing fire insurance for California homeowners.
An important part of the Strategy for insurance companies is that they will be permitted to use complex computer models called “black boxes” that are designed to simulate possible damage from fires to calculate the new premiums, rather than relying on past claims. Some of the issues the black box will monitor and report on to the insurance provider are:
1. The location of your home
2. The replacement cost of your home
3. The deductible amount
4. The condition of your roof
5. Your dog’s breed
6. Your claims history
7. The age of your home
8. Past home renovation or remodeling project
9. A swimming pool
10. Your past history of credit
11. Home safety and protective elements
12. So, the issue for you would be how well you would score on the above listed areas of concern that would determine if you are eligible for homeowner insurance and if eligible, what the cost would be.
If your insurance company agrees to the request per installation of the Black Box, the state has agreed to let your insurance company start writing policies again in high-wildfire-risk communities.
85% VS. 5%
The policies will be written using a pattern that will force insurance companies to issue a certain number of policies based upon the percentage of the market they control. Under the terms of the pattern, for example, if an insurer had a 10% statewide market share, it would have to cover at least 8.5% of homes in high-risk communities.
WHAT IS THE TRUTH
Consumer Watchdog maintains that the final regulations recently issued by the department do not actually require that insurers meet that percentage but instead allow them to meet lesser goals and even devise their own plan to improve their coverage.
YOU WILL PAY FOR TWO COVERAGES
The California Insurance Commissioner also plans to allow insurers for the first time to include in the cost of homeowner premiums, reinsurance they buy from large firms to protect their own bottom line from catastrophic events.
Consumer Watchdog says the changes amount to little more than a giveaway to the industry that will result in higher premiums without improving coverage. It suggests insurers be required to offer policies to homeowners and businesses that have taken steps to reduce fire risks on their property.
The Consumer Watchdog’s spokesperson went on to state:
“The Insurance Commissioner "historic agreement" with insurance companies last September included allowing the industry to use black-box catastrophe models to set insurance prices. Documents obtained by Consumer Watchdog under the Public Records Act reveal that the only consumer benefit of the plan, a "commitment" by home insurance companies' to resume sales in areas they say are risky, is a false promise. The legislation Lara's plan is based on would not require insurers to offer comprehensive home insurance to homeowners. Insurers could instead offer bare-bones FAIR Plan-equivalent policies, leaving consumers no better off than they are today.
TO PAY OR NOT TO PAY
Insurance Commissioner Ricardo Lara’s latest regulation to get insurers covering California again has another massive loophole. Insurers’ so-called commitment to increase sales in risky areas could be as small as a 5% increase.
The Commissioner announced last week that insurers who agree to sell in distressed areas, increasing coverage to at least 85% of their market share in the rest of the state, will get the right to raise all home insurance rates with secret algorithms. The coverage expansion is the one thing in his whole strategy to help the insurance industry that was supposed to benefit consumers.
A close reading of the text of the regulation makes clear that even that 85% commitment is false. Companies could opt instead to increase sales within distressed areas in California by just 5%, a potentially much lower commitment.
“Insurance companies would have these three options:
· Write 85% of their statewide market share in high-risk areas. The department explains it this way: “If a company writes 20 out of 100 homes statewide, it must write 17 out of 100 homes in a distressed area.”
· Achieve one-time 5% growth in the number of policies they write in high-risk areas.
· Expand their number of policies 5% by taking people out of the strained FAIR Plan, a pool of insurers the state requires to provide fire-insurance policies when property owners can’t obtain insurance elsewhere.”
·
So insurance companies could increase their sales in distressed/wildfire risk areas not up to at least 85% of their market share as announced, but by just 5%. For any insurance company that has already abandoned most homeowners in fire zones, that’s a pretty negligible promise. But in return they’ll still get the right to dramatically hike premiums for all of us with the use of secret algorithms in black box catastrophe models, and charge consumers for the unregulated cost. Enough is enough.
Respectfully,
Norman Lambe
nwlambe@gmail.com