How the wildfires in the Los Angeles area could affect California's home insurance market

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How the wildfires in the Los Angeles area could affect California's home insurance market

2025-01-10 09:57 Last Updated At：10:02

SACRAMENTO, Calif. (AP) — The wildfires that destroyed homes in multiple sections of the Los Angeles area will test California’s efforts to stabilize the state’s insurance marketplace after many insurers stopped issuing residential policies due to the high fire risk.

The wind-driven blazes that started Tuesday roared through neighborhoods from the Pacific Coast inland to Pasadena and the Hollywood Hills. The vast property damage in a disaster-prone state with high real estate prices and an uncertain insurance landscape could make coverage more expensive and even harder to find.

One area likely to feel the impact — and encounter challenges rebuilding — is Pacific Palisades, an affluent community sandwiched between the Pacific Ocean and the Santa Monica Mountains. This week's wildfire there has been named as the most destructive in the modern history of the city of Los Angeles. Flames destroyed businesses, a library, cultural landmarks as well as houses.

State authorities previously listed the Palisades as one of the five Southern California areas with the highest concentration of potential wildfire risks. The community also is among the areas most impacted by an unavailability of insurance coverage.

When State Farm decided to discontinue coverage for 72,000 houses and apartments in California last year, it dropped nearly 70% of its market share in Pacific Palisades, according to the San Francisco Chronicle.

Here's what to know about California's residential insurance crisis and how the ongoing wildfires may further disrupt the policy market:

California has seen other major insurers pull back on property coverage in the nation's most populous state as climate change makes wildfires, floods and windstorms more common and damaging.

Of the top 20 most destructive wildfires in state history, at least 15 occurred since 2015. The data did not include the Los Angeles area fires this week.

In 2023, seven of the 12 largest insurance companies by market share in California either paused or restricted issuing new policies in the state.

That has made it extremely difficult for homeowners in high-risk areas to obtain or afford insurance.

California homeowners in wildfire-prone areas either go without insurance or join the Fair Access to Insurance Requirements (FAIR) Plan, which the state created as a last resort for homeowners who couldn't find insurance.

Many people purchase the FAIR Plan to satisfy their mortgage requirements, but the policies only cover basic property damage and carry a $3 million limit. Given the value of the real estate involved and the limited coverage, FAIR Plan policyholders who lost homes in this week's fires may struggle to be made whole.

The policies can be very bare bones, with some options only covering the actual cash value of what was lost rather than the true replacement costs, said Amy Bach, executive director of the consumer advocacy group United Policyholders.

The plan was designed to be a temporary solution, but more Californians are relying on it than ever. The number of FAIR residential policies issued in the state more than doubled between 2020 and 2024, reaching nearly 452,000 policies.

Policies sold to FAIR customers primarily fund the plan, but insurers would have to pay into the fund if it becomes insolvent or to keep it from insolvency. Under a new state rule, insurers could ask the state to approve rate increases to recoup the money spent on bailing out the FAIR Plan.

FAIR Plan spokesperson Hilary McLean said it could take years to tally total losses from the Los Angeles area fires. While it's too soon for reliable loss estimates, the FAIR Plan anticipates being able to pay out claims from the wildfires, McLean said.

“We are aware of misinformation being posted online regarding the FAIR Plan’s ability to pay claims," she said in a statement. "The FAIR Plan has payment mechanisms in place, including reinsurance, to ensure all covered claims are paid.”

The plan has roughly $700 million in cash on hand and about $2.5 billion in reinsurance, according to testimony given to California lawmakers last year.

The mean home value in Pacific Palisades and its surrounding areas hovers around $3.3 million, according to real estate company Redfin. Owners of the most valuable properties probably are not relying on the FAIR Plan because of the coverage limit, said Jamie Court, president of nonprofit organization Consumer Watchdog.

The claims from the fires will be significant, Court said, “but this is not enough to put the industry out of business or the FAIR Plan out of business.”

On Thursday state lawmakers introduced a bill that would give the FAIR Plan the ability to seek “catastrophe bonds” if it faces liquidity challenges.

In a new tactic, state officials undertook a yearlong overhaul to give insurers more latitude to raise premiums in exchange for more issuing policies in high-risk areas.

A new regulation that took effect this month allows insurers to consider climate change when setting their prices. California previously did not let insurance companies factor in current or future risks when deciding how much to charge. Many companies cited the restriction as their reason for retreating from the state's insurance market.

The state is also in the final stage of approving a rule that would let insurance companies pass on the costs of reinsurance to California consumers. Insurance companies typically buy reinsurance — or insurance for themselves — in case they face huge payouts from natural disasters or catastrophic losses. California is the only state that doesn’t already allow the cost of reinsurance to be borne by policyholders.

The new rules have prompted Farmers, the second-largest insurer in the state, to resume writing new policies for homeowners last month. Consumer Watchdog's Court says the rules also could make it easier for insurers to raise rates with little oversight.

It's “premature” to assess whether the wind-whipped fires and their destruction will put a damper on California's attempt to preserve home insurance options for residents, said Denneile Ritter, a vice president with the American Property Casualty Insurance Association, the largest national trade association for home, auto and business insurers.

But higher homeowner premiums could be coming soon, RAND economist Lloyd Dixon said. If insurers' models signal a potential increase of risk, “then you’d expect to see the requests for premium increases by the insurers,” he said.

California Insurance Commissioner Ricardo Lara said Wednesday that the newly enacted rules allowing climate change consideration in premiums will help insurers accurately assess risks and set fair rates. The state is also issuing a one-year moratorium prohibiting insurance companies from dropping coverage in areas affected by fires.

“Insurance companies are pledging their commitment to California, and we will hold them accountable for the promises they have made,” Lara said in a statement.

Associated Press writer Sally Ho in Seattle contributed.

New LA-area fire prompts more evacuations as officials say over 10,000 structures have burned

2025-01-10 09:58 Last Updated At：10:00

LOS ANGELES (AP) — A new fire prompted evacuations Thursday in and around Los Angeles even as firefighters aided by calmer winds saw the first signs of successfully beating back the region’s deadly and devastating wildfires, while the enormity of the devastation started to emerge.

The fast-growing Kenneth Fire started in the late afternoon in the San Fernando Valley near the West Hills neighborhood and close to Ventura County. The evacuation order covered parts of Ventura and Los Angeles counties.

The orders came as Los Angeles County officials announced the Eaton Fire near Pasadena that started Tuesday night has burned more than 5,000 structures, a term that includes homes, apartment buildings, businesses, outbuildings and vehicles. To the west in Pacific Palisades, the largest of the fires burning in the LA area has destroyed over 5,300 structures. Between the Eaton and Palisades fires, more than 10,000 structures have burned.

All of the large fires that have broken out this week in the Los Angeles area are located in a roughly 25-mile band north of downtown.

The Kenneth blaze ignited less than 2 miles (3.2 kilometers) away from the El Camino Real Charter High School, where people are sheltering from the fire in Palisades. The two fires are about 10 miles (18 kilometers) apart.

Dozens of blocks were flattened to smoldering rubble in scenic Pacific Palisades. Only the outlines of homes and their chimneys remained. In Malibu, blackened palm strands were all that was left above debris where oceanfront homes once stood.

At least five churches, a synagogue, seven schools, two libraries, boutiques, bars, restaurants, banks and groceries were lost. So too were the Will Rogers’ Western Ranch House and Topanga Ranch Motel, local landmarks dating to the 1920s. The government has not yet released figures on the cost of the damage or specifics about how many structures burned.

AccuWeather, a private company that provides data on weather and its impact, on Thursday increased its estimate of the damage and economic loss to $135-$150 billion.

City leaders were encouraged Thursday after firefighters made significant gains at slowing the spread of the two biggest fires that had ignited block after block from Pacific Palisades to inland Altadena, a community near Pasadena.

Crews also knocked down a blaze in the Hollywood Hills, allowing an evacuation to be lifted Thursday. The fire that sparked up late Wednesday near the heart of the entertainment industry came perilously close to igniting the famed Hollywood Bowl outdoor concert venue.

“While we are still facing significant threats, I am hopeful that the tide is turning,” Los Angeles County Supervisor Kathryn Barger said Thursday.

Water dropped from aircraft helped fire crews quickly seize control of the fires in the Hollywood Hills and Studio City, Los Angeles Mayor Karen Bass said. Much of the widespread destruction occurred Tuesday after those aircraft were grounded due to high winds.

Wind gusts were expected to strengthen Thursday evening through Friday morning, with another round of strong winds expected early next week, raising concerns that the conditions could worsen, the National Weather Service said.

But Thursday's daytime forecast provided a window for firefighters — including crews pouring in from neighboring states and Canada — to make progress in reining in blazes that have killed at least seven people and caused thousands of people to flee their homes.

Los Angeles Fire Department Capt. Erik Scott said firefighters were able to keep the Hollywood Hills blaze in check because “we hit it hard and fast and Mother Nature was a little nicer to us.”

Fire officials said Thursday that they don’t yet know the cause of the fires but are actively investigating.

Earlier in the week, hurricane-force winds with gusts up to 80 mph (129 kph) blew embers, igniting the Southern California hillsides.

Right now, it’s impossible to quantify the extent of the destruction other than “total devastation and loss,” said Barbara Bruderlin, head of the Malibu Pacific Palisades Chamber of Commerce.

“There are areas where everything is gone, there isn’t even a stick of wood left, it’s just dirt,” Bruderlin said.

Of the seven deaths so far, Los Angeles Fire Chief Kristin Crowley confirmed two were in Pacific Palisades.

Cadaver dogs and search crews are searching through rubble and the death toll is expected to rise, Los Angeles County Sheriff Robert Luna said.

Anthony Mitchell, a 67-year-old amputee, and his son, Justin, who had cerebral palsy, were waiting for an ambulance to come, but they did not make it out, Mitchell’s daughter, Hajime White, told The Washington Post.

Shari Shaw told KTLA that she tried to get her 66-year-old brother, Victor Shaw, to evacuate Tuesday night but he wanted to stay and fight the fire. Crews found his body with a garden hose in his hand.

On Thursday, recovery crews pulled a body from rubble of what was a beachfront residence in Malibu on the scenic Pacific Coast Highway. A charred washer and dryer were among the few things that remained.

While the two main fires were no longer spreading significantly, both remained at 0% containment, officials said.

At least 180,000 people were under evacuation orders, and the fires have consumed about 45 square miles (117 square kilometers) — roughly the size of San Francisco. The Palisades Fire is already the most destructive in Los Angeles' history.

At least 20 arrests have been made for looting, and the city of Santa Monica declared a curfew Wednesday night because of the lawlessness, officials said. Luna said to protect properties national guard troops would be stationed near the areas ravaged by fire and a curfew was expected to go into effect from 6 p.m. until 6 a.m., starting as soon as Thursday.

Flames destroyed the homes of several celebrities, including Billy Crystal, Mandy Moore and Paris Hilton.

Jamie Lee Curtis pledged $1 million to start a “fund of support” for those affected by the fires that touched all economic levels from the city’s wealthy to its working class.

California’s wildfire season is beginning earlier and ending later due to rising temperatures and decreased rainfall tied to climate change, according to recent data.

Dry winds, including the notorious Santa Anas, have contributed to warmer-than-average temperatures in Southern California, which has not seen more than 0.1 inches (2.5 millimeters) of rain since early May.

Robert Lara sifted through the remains of his home in Altadena on Thursday with tears in his eyes, hoping to find a safe containing a set of earrings that once belonged to his great-great-grandmother.

“All our memories, all our sentimental attachments, things that were gifted from generation to generation to generation are now gone,” he said.

Seewer reported from Toledo, Ohio and Watson from San Diego. Associated Press journalists Manuel Valdes, Eugene Garcia and Krysta Fauria, Jaimie Ding in Los Angeles; Ethan Swope in Pasadena, California; Hallie Golden in Seattle; Mark Thiessen in Anchorage, Alaska; Heather Hollingsworth in Mission, Kansas; Jeff Martin in Atlanta; Janie Har in San Francisco; Brian Melley in London; Kathy McCormack in Concord, New Hampshire; Sarah Brumfield in Cockeysville, Maryland; and Tammy Webber in Detroit contributed.