The devastation of the fires in Los Angeles has been hard to fathom. Thousands have lost their homes, priceless personal items, memories, and in some cases the very neighborhoods where they lived most of their lives. Some have even lost their lives.
And in the aftermath, we will be left with a problem that will impact millions of Californians: California’s collapsing market for home insurance.
Reports say that 1,600 people in the Pacific Palisades were kicked off of their insurance last year because it’s simply too expensive for insurers to cover some of these homes. California has a backstop plan, the FAIR plan, that is available to homeowners who can’t get insurance from any private insurers, but the FAIR plan likely does not have the funds to pay out even the damages from the fires of this past week, let alone future fires or other disasters to come as dangerous weather incidents continue to increase.
If we start seeing Californians without homeowners’ insurance losing their homes and getting no help from the state, the costs could be catastrophic. About a third of all of Californians’ savings are in home equity. For many California homeowners, especially seniors who live on fixed incomes, virtually all of their savings are in their house. The collapse of our home insurance system could lead to a 2008-style crash in housing prices that could devastate the state’s economy.
It is urgent that the governor and the Legislature take steps right now to avert this crisis, potentially including:
-
Shore up the FAIR plan with emergency state dollars, and hopefully federal dollars. The state should take advantage of President Biden’s pledge to fund our emergency response to attempt to get an infusion of federal cash into the state’s FAIR plan in order to ensure it has the funds to cover those without fire coverage.
-
Work with home insurers to cut red tape to keep them in the state. Insurers who have been good actors who have worked in good faith to stay in the state should be given priority, but ultimately we cannot regulate a vital industry like this out of existence. If we don’t have a home insurance industry in a state prone to natural disasters, we will be consigning many Californians to economic ruin. California’s law preventing homeowners insurance companies from considering future risk in their models may have made sense in 1988 when it was passed, but in a time of climate change, we need to look into allowing insurance companies to consider future risk in their models, otherwise it will be impossible for them to prepare for events like this.
-
Explore the creation of a more robust state insurance plan or an expansion of the FAIR plan. So far the FAIR Plan has historically paid for itself without state government help. California should look into putting state funds into the FAIR Plan on an ongoing basis rather than expecting it to fully pay for itself. In an era of climate change and increasing numbers of climate emergencies, the state may need to look at insuring Californians against catastrophic risk as one of its core services provided, rather than something that needs to break even. Given the multi-billion dollar shortfall in the FAIR plan today, in addition to state and federal dollars, insurance companies should also do their part and contribute more to the plan, to ensure that nobody in California is left without a home insurance option.
-
Invest in risk mitigation on the front end. As they say, an ounce of prevention is worth a pound of cure. If the state is going to be taking on more and more risk in the form of being an insurer of last resort for wildfires, it also needs to take steps to do what it can to reduce those wildfires. That means investing in underground power lines in high-risk areas, providing subsidies for growing native plants that are less likely to cause fire, removing invasive plants that can often start fires, and yes, it also means streamlining forest management. Even if the specific risks of “bad forest management” have been largely overblown by bad faith actors, it is also true that due to federal regulation, it takes five years to get approval for a prescribed burn. We need to speed up this process. While the causes of poor water pressure during the fires are unclear, we should also invest in ensuring we have robust water systems in place so that nobody finds themselves fighting a fire without water.
There is more than this that we need to do, but if we keep going at the pace we are going, more and more Californians will lose their homes to fires, and more and more of them will find themselves uninsured and having lost everything. Losing a home is a traumatic event, the type of thing nobody will soon forget.
Let’s work together to ensure that we have an insurance system that is there for when disaster strikes. In a crisis we should be all in this together, not everyone for themselves.
My thoughts and prayers are with the victims of these fires, and my office is here to help in whatever way we can.
Tony Thurmond is California state superintendent of public instruction and a former California assemblyman.