California's insurance is in crisis. The solution will cost homeowners a ton
California homeowners are facing an insurance crisis as insurers cancel millions of policies due to wildfire risks. New regulations may increase premiums while critics argue they favor insurers over homeowners.
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California is facing a significant insurance crisis, particularly for homeowners in fire-prone areas. Between 2020 and 2022, insurers canceled 2.8 million homeowner policies statewide, with 531,000 cancellations in Los Angeles County alone. The rising threat of wildfires has led many insurers to withdraw from high-risk areas, forcing homeowners to either go without fire insurance or rely on the California FAIR Plan, which offers limited coverage at higher premiums. The FAIR Plan's exposure has surged, indicating a growing reliance on this last-resort option. In response, the California Department of Insurance has introduced new regulations aimed at encouraging private insurers to write policies in these risky areas. However, these changes may lead to increased premiums, with estimates suggesting rates could rise by 40% to 50%. Critics argue that the new rules favor insurers and do not guarantee improved access to coverage for homeowners. The insurance industry contends that rising costs, driven by climate change and inflation, necessitate these adjustments. Despite the challenges, state officials assert that the new regulations are essential for balancing availability and affordability in California's insurance market.
- California homeowners face a crisis as insurers cancel millions of policies due to wildfire risks.
- The California FAIR Plan is becoming a primary option for many, but it comes with higher costs and limited coverage.
- New regulations aim to encourage private insurers to cover high-risk areas but may lead to significant premium increases.
- Critics argue that the changes benefit insurers more than homeowners, potentially limiting access to necessary coverage.
- Rising costs in the insurance market are attributed to climate change and inflation pressures.
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7 commentsUp until very recently, California had laws that prevented insurers from factoring in climate change, reinsurance costs (most home insurers get insurance themselves), and modeled results.
This is great for consumers in the sense that it keeps insurance costs low. It's bad in the sense that it underprices the risk in fire-prone areas by a lot. Historical losses don't work well for a tail-driven risk like wildfire or hurricane, where losses are infrequent but massive. California already allows modeled results for earthquake for similar reasons.
Accurately pricing tail risk is difficult for people to understand, because it looks overpriced for 10 years and then has all of the profits for the decade wiped out because of a single fire.
Now, are insurance companies saints? Of course not. They're trying to get as much money as possible from you. But it's a pretty competitive market, so if nobody wants to give you a policy, that says something.
https://www.bbc.com/future/article/20230922-these-la-goats-h...
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