Thursday marks the start of summer, but early wildfires are already scorching through the suburbs of Los Angeles and the Bay Area. Many California homeowners are more at risk than ever as major insurance companies pull out of areas threatened by climate-change-driven wildfires. Gov. Gavin Newsom and state Insurance Commissioner Ricardo Lara have responded by working to ease regulations and expand coverage.

Insurance industry representative Rex Fraser argues state leaders have the right idea — burdensome regulations make a difficult situation even worse — but consumer advocate Jamie Cote argues the state needs to go further, such as by requiring homeowners who meet fire safety standards to buy insurance.

California's rigid health system serves no one

Rex Fraser

As president of an association of homeowners insurance companies, I am frequently contacted by California residents who are worried about losing their insurance and whether their situation will improve. My answer is that I am not one of those who believe California is facing an uninsurable future. The problems we face are difficult, but they are solvable.

The state's current insurance challenges are rooted in the past. The devastating wildfires of 2017 and 2018 had devastating effects, forcing insurers to pay out claims worth two decades' worth of profits, but the state's insurance problems predate the wildfires. California's failure to update outdated rules that govern insurance rates left insurers long ill-prepared for a hotter, drier future.

California's laws are unique nationwide, including its rules for forecasting wildfire losses, a key factor in calculating insurance rates. California is the only state in the nation that requires property insurers to forecast future wildfire losses based on an average of wildfire losses over the past 20 years, regardless of where they plan to do business. Other states allow insurers to set premium rates based on where they plan to sell insurance and take into account the degree of fire risk of the properties they insure.

California is also an outlier nationwide when it comes to rate approval in that it is a “pre-approval” state, meaning insurance companies must get approval from the California Department of Insurance before they can increase or decrease rates.

California law requires a 60-day approval period, but it often takes six months or longer to get approval for rate changes. Delays at a time of high inflation force insurers to pull out of their highest-risk areas or face financial ruin.

A less obvious, but still significant, problem is the finances of the FAIR Plan, a pool of insurers that provides insurance of last resort. The FAIR Plan is stretched far beyond its ability to pay claims for major fires. When it runs out of money, it will have to charge insurers that are members of the pool a fee on top of claims from their own customers for the same fires. If these fees get too high, they could bankrupt the insurers. We must address this problem.

Fortunately, Insurance Commissioner Ricardo Lara recognizes the need to solve these problems. Sustainable Insurance Strategies “This bill would update California's rate regulation and approval process and require insurers to cover high-risk areas. While this proposal is far from perfect, we look forward to working with all stakeholders to increase insurance availability and restore market health.”

State regulations and procedures can be changed, but we remain vulnerable to forces beyond our control. Inflation makes repairing and rebuilding homes much more expensive, driving up rates. Extended dry periods increase the likelihood of catastrophic fires, with similar impacts in the short term. We need a system that acknowledges these realities.

But raising fees isn't a long-term solution: To gradually reduce fees requires agreement on how to deal with combustible fuels near valuable property.

This will take a lot of time and effort, and California homeowners insurers are ready to do their part to ensure the state’s insurable future.

Rex Frazier is president of the California Personal Insurance Coalition.

Newsom needs to look out for homeowners, not insurance companies.

Jamie Court

Home insurers are refusing to sell new policies or renew policies to many customers, leaving Californians in a bind and with few options for coverage. It forced more homeowners into the high-cost, low-benefit FAIR Plan.A pool of insurance companies mandated to provide insurance as a last resort.

Governor Gavin Newsom recently announced the bill. The move is intended to allow insurers to raise premiums more rapidly in order to lure people back into the state, which would certainly make premiums higher for Californians but is unlikely to help more people afford insurance.

Insurance companies are rejecting new policies despite recent large premium increases. On average, State Farm: 20% For farmers, for example, it's 37%. What scares them is the increased risk from FAIR Plans, which increasingly cover expensive homes in wildfire-prone areas. Insurers are liable for FAIR Plan claims and limit participation because participating in the market increases their risk.

Only getting people out of the FAIR Plan will solve this problem. The most practical way to do that is to require insurance companies to cover people who fireproof their homes. We are required to have health insurance and auto insurance. Why can't we insure homes that meet the standards?

Hardening is expensive, so most homeowners are unlikely to do it without guaranteed insurance, so making insurance mandatory is the best way to reduce wildfire risk.

Mitigation efforts are already paying off, with the number of major claims declining in recent years, and insurers have recovered billions of dollars from utility companies that suffered major fire damage in 2017 and 2018.

The current crisis was caused by investment losses and rising construction costs rather than wildfires. Insurers responded by tightening underwriting and raising premiums.

Insurance companies have decided to raise their prices, but are refusing to take on new business until they raise them even more. Unfortunately, Governor Newsom and Insurance Commissioner Ricardo Lara are ready to give the insurance companies what they want.

last week, Lara's proposed regulations Trying to deal with the crisis. Failed Legislative Proposals Last year, insurers were allowed to raise premiums based on black-box climate models. Florida tried a similar approach, but premiums are now about twice as high as in California. Florida's insurers of last resort cover 20% of homeowners in the state, about five times as many as in California.

The proposed regulations would require insurers to increase sales to homeowners in “distressed areas.” Five%But they won't be required to charge prices consumers can afford. Insurers could also be exempt from the requirement to cover these areas if they show they are “taking reasonable steps to honor the insurance contract.” The plan also gives insurers a two-year grace period to begin charging higher premiums to all policyholders immediately, though it does allow them to do so.

Governor Newsom says California insurance rates Too lowHe said California insurance companies' profits are generally Above the national average Over the past 20 years.

Governor Newsom's latest bill would limit public participation in rate setting by eliminating so-called interveners like the Consumer Watchdog, which has provided relief to consumers by challenging unnecessary rate increases. Over $6 billion in 22 years.

Throwing more money at insurance companies won't end the crisis, but requiring them to insure responsible homeowners will.

Jamie Court is president of the nonprofit Consumer Watchdog.