California Faces Insurance Crisis as Homeowners Lose Coverage Amid Extreme Weather
Before recent devastating wildfires in Los Angeles destroyed thousands of homes, many residents discovered they were already uninsured. Insurance companies are canceling policies, citing the increasing costs of rebuilding and the growing risks associated with extreme weather events. In a time of escalating climate change, California is grappling with a significant insurance crisis, as William Brangham reports.
Peggy Holter’s home in the Pacific Palisades, in the hills above Los Angeles, was one of the many properties consumed by fire, leaving behind only the foundation and memories. When the fire struck, Holter’s insurance had already been dropped by State Farm. The company stated that the condition of her roof, which only her homeowners association could address, prompted the cancellation of the policy, and the rising costs of rebuilding made insurance unsustainable. Another couple, Pam Nye and Chuck Foster, whose home was insured by Farmers Insurance, still found themselves without coverage after the fire. They were devastated to discover that their policy didn’t fully cover the damage.
“As a home, as a place, as a refuge, what was it like?” Chuck Foster, California Resident: “A place where you felt loved, a place where you felt comfortable. It’s just a little piece of heaven.”
Insurance companies are rapidly retreating from areas considered high-risk, and the situation extends beyond these individual cases. In 2023, California’s largest insurer, State Farm, ceased writing new policies within the state and subsequently declined to renew thousands of existing ones. The insurance crisis in California has been ongoing for roughly seven years, even before these recent fires. According to Amy Bach, Executive Director of United Policyholders, consumers have been regularly dropped from insurers they’d been with for decades, and competition has become extremely limited in certain areas.
With the private insurance market shrinking, more and more Californians are relying on the California FAIR Plan, the state’s insurer of last resort. The FAIR Plan’s policy numbers have more than doubled in recent years. However, Ricardo Lara, California’s insurance commissioner, maintains that the FAIR Plan is financially secure and will remain solvent, and that reforms are being implemented to bring private insurers back and offer more affordable rates, including allowing climate change considerations when setting rates. Lara emphasized the need to balance consumer protection and a strong, solvent market. He stated that his immediate focus is ensuring that existing claims are paid out to those affected by the catastrophic fires, and warned that if insurers failed to fulfill their obligations, he would take action.
State Farm has paid more than a billion dollars in fire claims and is, according to a company statement, “bringing the full-scale and force of our catastrophe response teams to help customers recover.” However, the company also requested an emergency rate hike averaging 22 percent. Lara believes this situation proves that climate change is significantly impacting the state’s insurance market, making coverage increasingly challenging to obtain and afford. The wildfires are just one example of the increasing risks faced by many Californians.
Chad Comey and his family, who resided in a complex that burned, did not have insurance for the interior of their unit due to affordability issues. The situation underscores the financial hardships many Californians face and the challenges of living in areas with increased environmental risks. Holter is facing the same issues. Insurance companies made money from these residents for a number of years, but now insurers cite risk as the reason for not paying claims or continuing policies.
The state of California and its insurers are now facing a critical task of managing the growing risks associated with climate change, to help the region rebound from these catastrophic events, which could become the costliest in American history, and ensure the availability of insurance coverage for its residents.
