California Bans Insurance Policy Cancellations In Boost To Property Owners. The Insurance Industry Prepares For Record-Breaking Losses

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The yearlong ban that California’s insurance authority rushed to impose on cancellations in parts of Los Angeles hardest hit by wildfires was likely the last thing insurance companies wanted in the face of anticipated record-breaking claims.

“Losing your insurance should be the last thing on someone’s mind after surviving a devastating fire,” Insurance Commissioner Ricardo Lara said in a statement. “This law gives millions of Californians breathing room and hits the pause button on insurance non-renewals while people recover.”

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The insurance commissioner is literally holding insurance companies’ feet to the fire. As Realtor.com reported, the moratorium on cancellations follows the commissioner’s unveiling of a new rule requiring private insurance firms to start writing new policies in high-risk areas if they wanted to keep doing business in California, but with the concession that they would be allowed to pass the costs on to their customers.

As of Wednesday, Jan. 15, the Los Angeles area wildfires had killed at least 25 people, destroyed more than 12,000 structures and charred more than 60 square miles. The largest by far – the Palisades and Eaton wildfires – continue to burn out of control. The fire has come at the worst possible time for homeowners – just months after private insurers canceled 1,600 policies in Pacific Palisades over high fire risks. At the same time, major private insurers like State Farm, Nationwide, Farmers Insurance, Allstate, USAA and The Hartford stopped writing new policies in high-risk areas or limited their coverage.

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Faced with the prospect of having their homes uninsured, almost half a million Californians were forced to enroll in the Fair Access to Insurance Requirements (FAIR) Plan, the state-sponsored insurer of last resort. According to Reuters, more than 1,400 homes were covered by the FAIR Plan last year in the Palisades neighborhood alone, up 85% from the previous year.

“One sees relatively low premiums in high-risk markets in California, but that might be starting to change,” said Philip Mulder, a University of Wisconsin professor who studies the industry.

According to AccuWeather, the total economic loss to Southern California from the wildfires is estimated to be between $135 billion and $150 billion, which will rise the longer the fires burn.

“These fast-moving, wind-driven infernos have created one of the costliest wildfire disasters in modern U.S. history,” stated AccuWeather Chief Meteorologist Jonathan Porter.

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“Hurricane-force winds sent flames ripping through neighborhoods filled with multi-million-dollar homes. The devastation left behind is heartbreaking and the economic toll is staggering. To put this into perspective, the total damage and economic loss from this wildfire disaster could reach nearly 4% of the annual GDP of the state of California.”

Property owners have seen insurance costs soar over the last two years in the wake of one natural disaster after another. According to CBS News, the worst hit were affordable housing providers, where nearly one in three policies experienced rate increases of at least 25% in the most recent coverage renewal period. The LA wildfires are likely to add crippling losses to an industry already gasping for air.

Bloomberg reports that new estimates of the insurance industry’s total losses are now as high as $40 billion and some estimates are even higher.

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Dave Jones, a former California Insurance Commissioner, doesn’t expect this event to push any insurers into insolvency. Jones, now at UC Berkeley’s Center for Law, Energy and the Environment, told NPR, “It will be an earnings event for them as they say in the industry, which means they won’t make profits this year for sure.” Added Jones: “There’s no question that before these wildfires, they … were going to raise rates more. Now, with these wildfires, they’re going to be able to ask for even higher rate increases.”

The Guardian reported that some insurance companies send out private firefighters to protect insured properties to limit their payouts.

One such company is Wildfire Defense Systems. Founder Dave Torgerson said his company is working to “break the ignition cycle” by stopping individual buildings from catching fire. They use fire-blocking gels, flame retardants and other equipment to protect at-risk buildings. “The biggest component of making a structure survive a wildfire incident is labor.”

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The state of California has taken a major step to protect property owners by banning insurance policy cancellations. This move comes as the insurance industry braces for record-breaking losses due to wildfires, hurricanes, and other natural disasters.

The new legislation prohibits insurance companies from canceling policies for homeowners in high-risk areas, ensuring that residents can maintain coverage and protect their assets. This is a crucial development as climate change continues to increase the frequency and severity of extreme weather events.

While this decision is a win for property owners, it is expected to have significant financial implications for the insurance industry. With the potential for more claims and payouts, insurers are preparing for unprecedented losses in the coming years.

As California leads the way in protecting homeowners, other states may follow suit in enacting similar measures to safeguard residents from the growing threat of natural disasters. It is clear that the insurance industry will need to adapt to these changing realities and find innovative solutions to mitigate risks and support policyholders in the face of mounting challenges.

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California Bans Insurance Policy Cancellations In Boost To Property Owners. The Insurance Industry Prepares For Record-Breaking Losses

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