California government has yet to break the deadlock as insurance companies continue to withdraw from the market following the catastrophic fires that struck Los Angeles unexpectedly in January, worsening the overall situation. Now, the question on everyone’s minds is: where should people turn to for insurance coverage in the future?
Last month, Los Angeles County was engulfed by multiple wildfires, resulting in the death of 29 individuals and the destruction of over 16,000 homes and commercial buildings. Experts from the private meteorological forecasting company, AccuWeather, estimated that the economic losses caused by these fires could exceed $250 billion, making it potentially the most devastating wildfire disaster in American history.
Among the losses incurred, insurance claims alone could cost the insurance industry nearly billions of dollars. For instance, California’s largest homeowners’ insurance company, State Farm, received thousands of claims following the wildfires.
Faced with tremendous losses, State Farm was compelled to submit a request to the California Department of Insurance on the 3rd of this month, seeking approval for a temporary 22% premium hike. However, last Friday (the 14th), the California Insurance Commissioner, Ricardo Lara, rejected this temporary request.
In his statement, Lara expressed, “In accordance with the stringent review mandated by California’s Proposition 103, State Farm has the responsibility to justify why a premium increase is necessary at this time. State Farm has failed to fulfill its duty.”
Statistics show that State Farm has already paid out over $1 billion in compensation to customers affected by the Los Angeles wildfires. The company estimates that the final payout amount will be even higher.
In a press release on February 3rd, State Farm stated, “The wildfire losses in January 2025 will further deplete State Farm General’s capital. Capital is necessary for insurance companies to cover any claims from the risks they underwrite in the future.”
According to the company, the immediate approval of their temporary premium increase by the California Department of Insurance was to prevent over 2.8 million policyholders in California (with 1 million being homeowners) from being in a ‘predicament.’
While Lara rejected State Farm’s request, he called upon the insurance company to participate in a meeting on the 26th of this month to address concerns regarding the company’s financial status and the proposed premium hike issue.
Eric, a senior Chinese insurance broker in Los Angeles, expressed concerns that excessive government intervention in the normal operations of insurance companies could backfire. If insurance companies tighten their operations in California again, it could become increasingly difficult and expensive for people to purchase insurance in the future.
Unlike other states in the USA, California passed Proposition 103 in 1988 to lower insurance rates. The law requires that insurance rates must be approved by the state government before implementation, and rates cannot be naturally increased due to inflation or other issues. In other words, insurance companies cannot adjust premiums based on current or future risks.
Eric mentioned that while not everything can be generalized, the current situation is challenging for insurance companies in California. They not only face increased risks like wildfires and natural disasters but also confront regulatory control enforced by the state government. “So, many have left, unwilling to do business in California. And what happened as a result? People can’t even buy insurance anymore, and some of my clients are now paying more than double the premiums than before.”
Since 2023, insurance companies have been withdrawing from California or limiting the number of new policies, citing reasons like increased wildfire risks and soaring construction costs.
Furthermore, on the 11th, the California Department of Insurance announced a need to collect $1 billion from private insurance companies to assist the “FAIR Insurance Plan” managed by the state government. Eric further worries that this will add more pressure on private insurance companies. He advised, “So, if you have insurance now, make sure to pay on time, or else you might lose it, and it will be very difficult to obtain new coverage.”
(Translated and rewritten from source)