Insurance will soon be hard to obtain in California

The Current Situation

Liberty Mutual Insurance has made the announcement that it is dropping all its renter and Condominium policies in 2025. Then it will cancel existing policies for remaining insureds in 2026.

This is a significant announcement as recently, the California Insurance Commissioner revealed his plan to bring order back into the industry with the use of computer-generated recommendations for new homeowners and condominium policies.

The Plan is the Problem

The issue for insurance companies in this state is that the fire losses have created a situation in which more money is going out in claim payments than is coming in, via insurance premium payments and investments, and the insurance executives do not see a change.

Insurance Commissioner Lara has proposed a new program which will provide policyholders in fire prone areas an opportunity to purchase insurance.

Based on the reports I have read, this new plan could make it impossible for most people to afford insurance. The following paragraph, taken from Consumer Watchdog, gives an outline of the Commissioner’s plan:

“Insurance companies would have to cover 85% of homeowners in wildfire areas in exchange for the right to raise rates. No such requirement exists in the text of the regulation. Lara said 85% of people will be covered, but his regulation said instead companies can choose to cover only 5% more people than they cover today. … And companies do not even have to meet that threshold, they can opt for an alternative arrangement if they want.”

The reinsurance question

To make sure enough money is available to meet the claim payments in a large loss situation, the purchase of reinsurance by carriers is allowed. Reinsurance is insurance for the insurance company. Now, at least for California, the reinsurance market is tightening up due to the large fire losses that have hit us recently. Also, insurance companies have decided in certain cases, not to continue to write property policies in areas that have been damaged by fires. This has created a panic situation for policyholders and put a strain financially on The California Fair Plan, which is a bare bones policy available to policyholders from the State, who for whatever reason(s) cannot purchase other coverage.

What the new plan will do

Now, our insurance rates will be set by a computer instead of each companies Underwriting analysis. Each company that has sold homeowner insurance in this state has developed their own premium analysis for billing their customers and it was not developed by a computer. It is up to the Insurance Commissioner and each carrier wanting to do business in this state to perfect a program that works for their benefit as well as for the customer.

The new plan will produce an amount to bill policyholders in an area that has been hit by fire, and the plan will be the same for each carrier with policyholders in that fire prone area. The rate to be charged could be any amount, as no prohibitions have been placed on the dollar amount.

What should be done?

In consideration of all the words and plans put forward, I see one big thing that is missing and that big thing is finding out how these fires were started.

Cal Fire has provided some surprising information about the number of fires in California in 2024. The number of fires in one year, 2024, which is not over at the time of this writing, shows that 7,997 wildfires reported this year, www.fire.ca.gov/incidents/2024. These impossible totals average out to over 600 wildfires a month.

I believe that the Commissioner’s Office, the State Assembly and State Senate, should begin to examine why losses of the current size have occurred in the first place. A certain number of the fires can be attributed to bad weather, lightening strikes, etc., however I believe we are fighting more than accidents of weather, or some other cause. Pyroterrorism needs to be explored instead of stating the cause of the wildfire is undetermined and closing the investigation.

For a campaign against pyroterrorism to be effective, each carrier with insureds located in wildfire areas, should include arson investigating and co-operation with homeland security.

In addition to the above, I believe the following suggestions be considered for action:

Permit insurance companies the ability to pass on to customers the cost of the purchase of reinsurance.

Call for the continual process of debris removal from state park and forest floors to prevent the intense spreading of wildfires.

Encourage policyholders to have a safe area around their homes which would prevent the spread of wildfire to the dwelling structure.

Encourage policyholders in wild land areas to have their own water supply on hand such as large water tanks 2,500 to 5,000 gallons each and be instructed on their maintenance and use.

Respectfully,

Norman Lambe

nwlambe@gmail.com