[A recent rule change in California could lead to a significant spike in insurance premiums for homeowners across the state, as the costs of the Los Angeles area wildfires are passed on to them in a way that was not allowed in the past. The costs of the fires are expected to be in the tens of billions of dollars, and the insurance industry is looking to recoup some of these losses by raising premiums for homeowners.
The California FAIR (Fair Access to Insurance Requirements) program, set up by the state as the insurer of last resort for homeowners whose fire insurance has been canceled, is likely to be assessed a significant amount to cover claims from the wildfires. In the past, these assessments were paid out of the insurance industry’s bottom line, but a new rule change allows much of the cost to be passed on to homeowners in the form of higher premiums.
Insurers will be able to pass on 50% of the first $1 billion in assessments they receive, and 100% of any assessments above that level. This means that even homeowners in areas with little or no risk of wildfires could see their premiums increase. The California FAIR program has already seen a significant increase in policies written in areas affected by the fires, with its exposure in the Pacific Palisades community more than doubling over the past year.
Consumer advocates have criticized the rule change, saying it is an unneeded and illegal bailout of the insurance industry that will leave thousands of homeowners with no alternative but to use FAIR to protect themselves from catastrophe. They have vowed to challenge the rate increases in court.
The impact of the rule change is expected to be significant, with some estimates suggesting that homeowners could see their premiums increase by as much as $1,100 per year. The California insurance commissioner has said that the goal of the rule change is to get insurers more willing to write homeowners policies themselves in areas at the greatest risk of wildfires, rather than forcing those homeowners to turn to FAIR.
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