FOX Business Cheryl Casone joins Fox & Friends First to discuss the insurance crisis in California as wildfires ravage Los Angeles and broader concerns about how the industry is moving forward.
particle for direct object Deadly fires that hit Southern California this week after some leading insurance companies pulled back from offering policies in the Golden State in recent years due to increased wildfire risks as well as a challenging regulatory environment. destroyed
Several ongoing fires, including the Palisades Fire and the Eaton Fire, have devastated communities in the area. Los Angeles areaincluding Pacific Palisades and Altadena. The fires have burned about 30,000 acres amid Santa Ana winds, and at least 130,000 people in the area are under evacuation orders. At least five people have been killed in these fires and more than 1,000 buildings have been destroyed.
State Farm, California's largest home insurer, announced in March 2024 that it would stop covering 72,000 home and apartment insurance policies over the summer. The company cited inflation, regulatory costs and increased disaster risk for its decision, and had already stopped accepting new applications in the state.
Several other leading insurers, including All State, Farmers and USAA, have also introduced new policy programs in California in recent years as part of an effort to limit exposure to policies that have risks beyond what state lawmakers have allowed. They know it is wrong, they have limited it. charge them from insurers. Similar reasons for increased risk, high repair costs and increased reinsurance premiums are cited in these decisions.
Plumes of smoke are seen as a brush fire burns in Pacific Palisades, California on January 7, 2025. A fast-moving wildfire in suburban Los Angeles burned buildings and prompted evacuations Tuesday as “life-threatening” winds lashed the area. more th (DAVID SWANSON/AFP via Getty Images/Getty Images)
This week's wildfires have drawn new attention to the fact that insurers are no longer taking out new policies or refusing to renew existing policies in California communities at risk of wildfires, as prominent figures in the entertainment industry announced the moves in the wake of the disaster. they did
James Woods, an actor who owns a house in Southern California area burned by the Palisades fire, wrote in X that “one of the big insurance companies (sic) canceled all insurance policies in our neighborhood about four months ago.”
Actor Rob Schneider slammed State Farm in a post on X, writing, “Screw you and all your bogus ads!”
“Our number one priority right now is the safety of our customers, agents and employees affected by the fire and helping our customers in the midst of this disaster,” a State Farm spokesperson told FOX Business in a statement.
State Farm cuts insurance on 72,000 California homes: 'Decision not taken lightly'
The spread of the palisade fire was mapped. (Fox News)
status of California home insurance market It has struggled in part because of regulatory restrictions on how much premiums companies can charge policyholders, as well as increased exposure to wildfires and other extreme weather events that have pushed up payouts and squeezed the reinsurance market. has encountered
California voters approved Proposition 103 In 1988, it was intended to protect policyholders from unfair rate increases by requiring insurers to obtain approval from the California Department of Insurance for increases of more than 7 percent. The law also limits rate increases and spreads any increase over a three-year period.
Fires in California Rapidly Review Federal and State Laws That Impede Mitigation Efforts
Firefighters battle flames from the Palisades fire that burned a theater during a severe windstorm on January 8, 2025 in the Pacific Palisades neighborhood of Los Angeles. (Apu Gomes/Getty Images/Getty Images)
While insurers can and do get approvals for larger increases — State Farm secured a 20 percent increase in home and auto premiums in January 2024 and subsequently requested a 30 percent increase for home insurance last summer — the process can take time. And as rate increases approved by the regulator may not be sufficient to continue offering policies while maintaining the insurer's policies. Financial stability.
By limiting insurers' ability to raise rates to increase risk, it keeps insurance plans artificially low for consumers. This means that insurance companies are faced with the decision between keeping that excess financial exposure on their books or taking steps to limit the exposure or exiting the market.
The state of California offers what is called a FAIR plan as a last-ditch insurance option for consumers who are unable to secure a plan in the private market. However, policies are still expensive, and insurers are raising concerns about the sustainability of FAIR plan growth.
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FAIR's plan exposure increased by $174 billion, or more than 61%, from September 2023 to September 2024, when its residential exposure reached $458 billion. The number of residential policies in force under the FAIR program increased from 320,581 to 451,799 during that period, an increase of 248,902, or 123 percent, since September 2020.
“FAIR Plan continues to grow as consumers find themselves without coverage. As a result, we've doubled in size in the last three years,” FAIR Plan President Victoria Roach said at a hearing in March. As the numbers increase, our financial stability is further questioned.”