The Los Angeles Fires Will Put California’s New Insurance Rules to the Test

Lloyd and his wife later bought another home in Hidden Valley Lake, a town that has taken ambitious steps to reduce flammable vegetation, but their insurance premiums are still more than $4,500 a year, three times what they were at their last home in Kansas. Lloyd’s worried that his insurance company would raise his prices even further under the new rules.

Other western states like Colorado and Oregon are also seeing insurance coverage gaps after major wildfires, though their problems are less severe than in the Golden State. In Colorado, for example, officials recently established one State fire insurance backstop Like California’s FAIR plan, since there have been massive customer dropouts over the past few years. California’s grand bargain with the insurance industry provides a blueprint for those other states: If you want to address coverage gaps, you have to give insurers greater authority to set prices.

Firefighters battle the Eaton fire near the Altadena area of ​​Los Angeles County, California. The fire exploded in strength during a fierce Santa Ana storm earlier this week.

Photo: Josh Edelson/Getty Images

Even this may not be enough. The past few years have been spared major wildfires, such as 2017 and 2018, but this week’s wildfires in the Los Angeles area could cause billions of dollars in damage, on par with events like the Camp Fire.

Joel Laucher, a former regulator and fire insurance expert at the consumer advocacy organization United Policyholders, said the damage from the Los Angeles fires could lead to more price increases and more availability gaps.

“These are definitely going to be big losses,” he told Grist. “Certain areas are certainly going to face new challenges, to the extent that insurers are able to charge the rates that they believe these areas deserve to pay.” Laucher said insurance companies can’t refuse to renew as many policies as under previous state rules, but they can still avoid selling policies in some affected areas.

Insurance trade group Frazier expressed similar concerns. He said despite commissioners’ reforms, another monster fire on the scale of 2017 and 2018 could drive the insurance industry away from the state once again.

“If we have a few more phenomenal years, all bets are off,” he told Grist.