California bans cancellations of insurance policies for property owners. The insurance industry prepares record-breaking losses
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A year-long ban by California’s insurance regulator on cancellations in areas hit by wildfires in Los Angeles is probably the last thing insurance companies want in the wake of an expected record-breaking number of claims.
“Losing your insurance should be the last thing on anyone’s mind when surviving a devastating fire,” Insurance Commissioner Ricardo Lara said in a statement. “This legislation gives millions of Californians breathing room and hits the pause button on non-insurance renewals while people recover.
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The insurance commissioner is literally holding the insurance companies’ feet to the fire. According to Realtor.com, the suspension of cancellations is due to a new rule the commissioner announced that would require private insurance companies to begin writing new policies in high-risk areas if they want to continue doing business in California, but only if they agree that they will. They are allowed to pass the costs on to their customers.
The wildfires that swept through the Los Angeles area on Wednesday, January 15th killed at least 25 people, destroyed more than 12,000 buildings and burned more than 60 square miles. The largest yet – the Palisades and Eaton wildfires – continue to burn out of control. The fire came at a particularly devastating time for homeowners – just months after private insurers canceled 1,600 policies. Pacific Palisades Over high fire hazards. At the same time the main Private insurers Companies like State Farm, Nationwide, Farmers Insurance, Allstate, USAA and The Hartford have stopped writing new policies or limited coverage in high-risk areas.
Faced with the possibility of their homes becoming uninsured, nearly half a million Californians are forced to enroll in the state-sponsored Fair Insurance Requirements (FAIR) plan, the last resort. According to Reuters, more than 1,400 homes in the Palisades neighborhood alone were covered by the FAIR plan last year, an 85 percent increase over the previous year.
“One sees relatively low premiums in high-risk markets in California, but that may be starting to change,” said Philip Mulder, a professor at the University of Wisconsin who has studied the industry.
According to AccuWeather, total economic losses from the wildfires in Southern California are estimated to be between $135 and $150 billion, and that number will increase as the fire progresses.
“These fast-moving, wind-driven fires have created one of the costliest wildfire disasters in modern U.S. history,” said Jonathan Porter, chief meteorologist at Aquistar.
“Storms sent flames through neighborhoods full of multimillion-dollar homes. The devastation left behind is heartbreaking and the economic toll staggering. To put this in perspective, the total damage and economic loss from this wildfire could be as much as 4% of the annual gross domestic product of the state of California.
Property owners have seen insurance costs rise following a natural disaster in the past two years. According to CBS News, they were seriously injured. Affordable housing Providers, nearly one in three policies saw a rate increase of at least 25% during the most recent coverage renewal period. L.A.’s wildfires could add crippling losses to an already volatile industry.
Bloomberg reports that new estimates of the total loss of the insurance industry are about $40 billion, and some estimates are even higher.
Dave Jones, the former California insurance commissioner, doesn’t expect this event to push any insurers into bankruptcy. Jones, now at UC Berkeley’s Center for Law, Energy, and the Environment, told NPR, “It’s going to be a revenue event for them like they are in the industry, which means they’re definitely not going to make a profit this year.” Jones added: “Before these wildfires, there’s no doubt that they… will add more value.” Now, with these wildfires, you can ask for a higher raise.
The Guardian reports that some insurance companies send private firefighters to protect insured properties to limit their payouts.
One of these companies is Wildfire Protection Systems. Founder Dave Torgerson says his company is working to “break the ignition cycle” by stopping individual buildings from burning. They use fire retardant gels, fire retardants and other equipment to protect buildings in danger. “The biggest part of saving a structure from fire is labor.”
