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 premium is still more than $4,500 a year, more than triple what it was on their last home in Kansas. Lloyd is worried that his insurance company will hike his price further under the new rules.

Other states across the West such as Colorado and Oregon are also seeing insurance coverage gaps emerge after big wildfires, though their problems are less acute than those in the Golden State. In Colorado, for instance, officials just recently established a state fire insurance backstop like California’s FAIR Plan, since it’s only in the past few years that customers there have been dropped en masse. California’s grand bargain with the insurance industry provides a blueprint for those other states: If you want to address coverage gaps, you need to give insurers broader authority to set prices.

Even this might not be enough. The past few years have seen a reprieve from major wildfires like the ones that struck in 2017 and 2018, but this week’s blazes in the Los Angeles area could cause billions of dollars of damage, on par with an event like the Camp Fire.

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

“These are going to be major losses, certainly,” he told Grist. “Certain areas are definitely going to have new challenges, to the degree that insurers are going to be able to charge to the rate they believe those areas deserve to pay.” Laucher said that insurance companies may not decline to renew as many policies as they might have under previous state rules, but they could still avoid selling policies in some of the affected areas.

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

“If we were to have a couple more unprecedented years, all bets are off,” he told Grist.