California Insurance Crisis Deepens as More Insurers Exit Market Amid Wildfire Risks

The insurance crisis in California continues to worsen as two more home insurers, Tokio Marine America Insurance Co. and Trans Pacific Insurance Co., announced their plans to stop offering homeowners coverage and personal umbrella policies in the state. The move will impact over 12,500 policyholders, with non-renewal notices set to be sent out starting July 1, 2024, and becoming effective by August 1, 2025.

This decision is part of a broader trend of insurance companies pulling out of the California market, citing increasing risks from climate change, particularly wildfires, and a challenging regulatory environment. Major insurers like Allstate, State Farm, Farmers Insurance, and The Hartford have also recently limited or stopped taking on new policies in the state.

Why this matters: The exodus of insurers from California's market is leaving homeowners with fewer options for coverage and facing the prospect of higher premiums. As more residents struggle to find affordable insurance, the state's last resort insurance, the FAIR Plan, is dealing with a surge in demand, raising concerns about its ability to handle a major disaster.

According to a recent report, over 50% of California residents are now facing the risk of policy cancellations or significant premium hikes. In 2022 alone, seven of the 12 largest insurance groups in the state either paused or restricted new homeowner policies. The FAIR Plan, which now insures about 373,000 properties, added a record 15,000 policies in February 2024 alone.

Legislative efforts are underway to provide some relief, including a new federal bill proposing a public reinsurance program. However, the insurance market remains tense as insurers confront the increasing frequency and severity of wildfires driven by climate change. Some companies are adopting advanced data-driven risk assessment methods and offering 'green' insurance products that incentivize homeowners to implement sustainable and resilient measures.

California Insurance Commissioner Ricardo Lara has announced new rules for the industry, including requiring insurers to write at least 85 percent of their policies in high-wildfire-risk and 'underserved' communities. The rules also ease restrictions on insurers, allowing them to use forward-thinking models to set rates. Lara emphasized the need for collaboration between insurers, regulators, and communities to find solutions that balance cost and growing climate threats.

As the insurance crisis in California intensifies, homeowners are advised to take proactive steps to improve their home's fire resilience, stay informed about policy changes, and consult with insurance professionals to navigate the challenging market conditions. "Homeowners have to be very diligent and shop around for coverage," said Amy Bach, executive director of United Policyholders, a consumer advocacy group. "It's a difficult time, but there are still options out there if you know where to look."

Key Takeaways

• Two more insurers, Tokio Marine and Trans Pacific, to stop CA home coverage.
• Over 50% of CA residents face policy cancellations or premium hikes.
• FAIR Plan, CA's last resort insurer, sees surge in demand, raising concerns.
• New federal bill proposes public reinsurance program to provide relief.
• CA regulator requires insurers to write 85% of policies in high-risk areas.