Chris Finnie didn’t lose her Boulder Creek home when the CZU Lightning Complex fires in 2020 ripped through the Santa Cruz Mountains. But she lost her home insurance anyway and got forced onto a bare-bones last-resort policy that costs three times as much.
As Insurance Commissioner Ricardo Lara embarks on a politically risky bid over the coming year to stabilize California’s imploding home insurance market by making it easier to raise premiums, homeowners in fire-ravaged communities seem resigned to a grim fate. In a state already grappling with unaffordable housing, the cost of insuring homes in much of California is about to get a lot higher.
“We’re kind of caught between the devil and the deep blue sea,” Finnie said. “We either pay outrageous amounts money for substandard insurance, or outrageous amounts of money for actual insurance from insurance companies. I don’t see an alternative.”
Companies such as State Farm, Allstate and Farmers Insurance stopped issuing or limited new policies throughout much of the Bay Area last year and notified homeowners that their policies would not be renewed. For many, the only options are an expensive state-mandated policy known as the FAIR Plan, offering minimal coverage, or no insurance at all — if they don’t have a mortgage that requires it.
Californians, who approved some of the country’s toughest insurance regulations in 1988, have enjoyed a bit of a break on home policies, according to the Insurance Information Institute. The state’s average homeowners insurance premium of $1,241 for 2020, the most recent data available, is below the U.S. average of $1,311, and those in Florida, at $2,165, Oklahoma, at $2,040 and Louisiana, at $2,038 — states all regularly wracked by hurricanes and tornadoes.
But the institute reports that the 10 costliest U.S. wildfires in insured losses all occurred in California, eight of them in just the last decade. Those include the 2018 Camp Fire near Chico, the 2017 Tubbs and Atlas fires in Wine Country, and a series of 2020 lightning-sparked fires, the LNU Complex in the North Bay and the CZU Complex in the Santa Cruz Mountains.
The bill is now coming due. Consumer participation in the FAIR plan — established under state law in 1968 to require insurers to provide basic coverage in high-risk areas where it’s otherwise unavailable — has more than doubled since 2018 to about 3% of state policies.
The FAIR Plan, which doesn’t provide additional coverage for personal belongings, isn’t cheap. Finnie, 73, who’s partly retired, saw her annual premium triple to nearly $2,800 for its lesser coverage.
Jaimi Jansen, a Bonny Doon businesswoman whose home also survived the CZU blaze, had to get FAIR Plan coverage too after being dropped by her insurer, and now pays $14,000 — 10 times what she’d been paying — for the skimpier policy. She has to rent out a room in her house to help pay the bills.
“I’m trying to figure how to afford to live in Santa Cruz,” Jansen said. “It’s tough. The whole insurance thing is a total bummer.”
Insurers have laid out a host of demands they say are needed to stabilize a California market they say has grown riskier with a warming climate. They want faster approval for rate increases, the ability to calculate rates based on computer risk modeling, and to factor in insurer costs for secondary insurance on their own risk exposure. They also want consumers to help cover their FAIR Plan risks.
Insurers now must base rates only on historic losses, not projected risks, and approval for requested increases takes more than a year — twice as long as in Florida and four times as long as in Texas, according to the December Property Insurance Report by industry data analysis service Risk Information.
Consumer advocates — chiefly Los Angeles’ Consumer Watchdog, whose founder wrote the state’s 1988 insurance regulation initiative — have been vigorously opposed to the reforms, arguing they will bring higher premiums without transparency or guarantees insurers will offer new policies.
Lara in September announced plans to deliver by December 2024 the most sweeping overhaul to the state’s insurance regulations in more than three decades, with changes aimed at stemming the flight of insurers from the California market while ensuring they offer competitive policies in fire-risk areas. In exchange for industry requested regulatory changes, it would require insurers to provide 85% of policies in high-risk areas.
The proposed plan didn’t please either insurers or consumer advocates. Insurers say taking all of 2024 to develop regulatory changes means meaningful reform won’t be in place for years while California’s market teeters on collapse.
In December’s Property Insurance Report, the editors argued the industry’s requested relief is reasonable and Lara’s 85% rule likely unworkable and should be replaced with separate deals with individual insurers. They added that Lara has the authority he needs to enact changes now, and that “there is one undeniable fact for homeowners in California: many will face higher prices for property insurance.”
Among residents in the state’s fire-scorched regions like the Santa Cruz Mountains, the commissioner’s plan leaves them frustrated and resigned to yet another rising cost.
“It’ll be business as usual and the insurance companies win,” said Bob Burns, an automotive business consultant who moved from Boulder Creek, where his house survived the fire, to a home down Highway 9 in Felton where he could only get FAIR Plan coverage. “It’s blackmail at this point — you have to pay them.”
Scott Tucker, a Boulder Creek financial adviser and local historian whose house also survived but who also lost coverage and had to take a FAIR Plan policy, suspects the insurers are milking climate change as an excuse to gouge homeowners over fire risk he attributes more to poor forest management. Like many here, he’s taken numerous steps to make his property fire resistant, but sees no relief from insurers.
But Finnie, who has spent time studying and writing about the situation for local publications, feels like home insurance is going to cost more one way or another.
“I’ve seen massive changes in the risk profile in the state,” Finnie said. “There’s going to have to be some change and it’s going to cost us more. But it’s already costing us more.”
