CBS - KCAL - Impact of Wildfires On Insurance Market (Airdate: 2024-09-11)

Published Date: 09/11/2024

The Impact of Wildfires on California’s Insurance Market: What Homeowners Need to Know

As flames sweep across California’s hillsides once again, the question isn’t just about what’s burning — it’s about what’s breaking.

For years, the state’s insurance market has been stretched thin by a relentless cycle of catastrophic wildfires, insurer withdrawals, and mounting homeowner anxiety. Every new fire season raises the same haunting question:

How much longer can California’s insurance system hold?

In a CBS–KCAL segment aired on September 11, 2024, investigative reporter Christine Lazar and insurance expert Karl Susman tackled this issue head-on, breaking down what these fires mean for homeowners, insurance availability, and future premiums. Their conversation painted a complex but cautiously hopeful picture — one where consumer protections, regulatory reforms, and market resilience still offer a path forward.

A Market Already on Edge

Even before the latest blazes, California’s insurance landscape was fragile. Over the past two years, major carriers have paused or scaled back operations, citing unsustainable wildfire losses and outdated rate regulations that limit how they price risk.

Some companies have requested rate hikes as high as 40% to 50%, while others have stopped writing new homeowners’ policies entirely in large parts of the state.

“We’ve had over 900,000 acres burn in California so far this year,” Susman noted. “And about 1,200 structures have been lost. This is exactly what everyone’s been worried about.”

Each destructive event compounds insurer caution, driving up costs for consumers and pushing more homeowners into the state’s last-resort FAIR Plan, which offers only basic fire coverage.

For homeowners, it’s not just a financial burden — it’s an existential one. Many wonder if their next renewal notice will bring another steep premium increase or a non-renewal letter altogether.

Why Wildfires Matter So Much to Insurers

To understand why these fires hit the insurance market so hard, it’s important to remember how insurers operate.

Insurance isn’t just about paying claims; it’s about predicting and pooling risk. When wildfires destroy thousands of homes in concentrated areas, insurers face not just individual claims, but correlated losses — hundreds or thousands of claims at once.

That concentration of exposure breaks the traditional insurance model. It’s like betting that not everyone will crash their car at the same time — and then discovering that, in fire zones, they sometimes do.

Without the ability to price risk accurately or raise rates quickly (due to California’s regulatory system under Proposition 103), insurers face a simple choice: pull back or go broke.

That’s why, as Susman put it, every wildfire has ripple effects:

“These are the fires that everyone’s been worried about — the ones that could destabilize the market again.”

The Immediate Fallout: Consumer Protections Kick In

Despite the widespread anxiety, Susman emphasized that California’s Department of Insurance (CDI) is one of the most proactive regulatory bodies in the nation — and that it moves quickly to protect policyholders after disasters.

“As soon as the perimeter is established,” he explained, “I expect the Department of Insurance to do what they always do — put a lock in place so that insurance carriers don’t have the ability to non-renew people in those affected areas.”

That “lock” refers to California’s one-year non-renewal moratorium, triggered automatically after the governor declares a state of emergency.

In this case, Governor Gavin Newsom had already declared such an emergency for the Line Fire in San Bernardino County. Once CAL FIRE defines the affected perimeter, the CDI enforces the moratorium — preventing insurers from canceling or refusing to renew policies for one year in and around the disaster area.

This policy gives residents breathing room. It prevents insurance disruption during the most vulnerable period — when homes, communities, and finances are still recovering.

The Medium-Term Impact: Rates and Renewals

So what happens next — to rates, renewals, and the broader market?

According to Susman, rate changes won’t happen immediately.

“Any time there’s a change that has to be made to rates or underwriting for an insurance policy, it has to go through a pretty substantial process with the Department of Insurance,” he explained. “So the likelihood of us seeing any direct impact right now or in the next few months is pretty low.”

That’s because insurers can’t just raise prices overnight. Every proposed rate increase must be reviewed — and often contested — by the CDI, consumer advocacy groups, and sometimes even the public.

This deliberate process is meant to protect consumers from sudden, unfair spikes. But it also means that the financial shock from disasters can take months or even years to filter through the system.

Susman’s hope is that by the time new rate filings arrive, the state’s market reform efforts — including changes announced in 2024 — will already be in effect, encouraging carriers to return to the state and restoring competition.

“Hopefully by the time we start to see changes,” he said, “the new regulations will be in place to bring competition back to California. So we won’t see something as dramatic as we would normally see.”

What Homeowners Can Do Right Now

Even with protections in place, Susman offered practical advice for homeowners — especially those in high-risk or hillside areas:

1. Make Your Home Fire-Resistant

The first and most effective step is to reduce your property’s fire exposure.

• Clear defensible space around your home.
• Replace wooden fences and decks near the structure with noncombustible materials.
• Install ember-resistant vents and Class A roofing.

These improvements not only protect your property but may make you eligible for “Safer from Wildfires” insurance discounts, part of California’s effort to reward mitigation efforts.

2. Follow Evacuation Orders — Safety First

Susman made a critical point: no insurance policy is worth risking your life for.

“Don’t be the hero. Don’t be the one on the roof with the hose. If there’s an evacuation order, please get out. No property is worth your safety.”

3. Shop Around (Even If It’s Hard)

California’s market may be constrained, but options still exist — especially through independent brokers who can access surplus-line and specialty carriers.

“Always do what you can to shop around,” Susman advised. “Hopefully by the first quarter of next year, we’ll see more options for consumers to find competitive bids.”

Even if you stay with your current insurer, comparing quotes helps you understand the market and identify opportunities for discounts or improved coverage.

The Role of Regulation: A Pro-Consumer Framework

One of the recurring themes in Susman’s comments was confidence in California’s regulatory structure.

“Here in California, we have a very pro-consumer Department of Insurance,” he said. “So we are protected there.”

That protection goes beyond moratoriums. The CDI is actively reforming how insurers can operate in the state — including:

• Allowing catastrophe models to be used in rate filings (for more accurate risk pricing).
• Fast-tracking approvals for insurers that commit to writing more policies in high-risk areas.
• Encouraging transparency in non-renewal decisions and FAIR Plan transition processes.

These measures, announced in 2024, are part of a broader effort by Insurance Commissioner Ricardo Lara to balance consumer protection with market sustainability — ensuring that Californians have both fair rates and access to coverage.

A Crisis of Geography and Climate

Ultimately, California’s insurance crisis is as much about geography and climate as it is about regulation.

Nearly one in four homes in the state lies within a high or very high fire hazard severity zone. Add to that prolonged droughts, overgrown forests, and development expanding deeper into the wildland–urban interface, and the risk becomes almost systemic.

This convergence — climate risk meets human expansion — is reshaping the entire insurance model.

It’s no longer about whether fires will happen, but how often and how expensive they’ll be. That’s forcing insurers, regulators, and consumers alike to rethink what sustainable coverage looks like in a fire-prone state.

Looking Ahead: Hope for a Stabilizing Market

Despite the grim headlines, Susman offered a message of cautious optimism.

“Hopefully, again by the first quarter of next year,” he said, “we’ll see the industry start to open up again. There will actually be options for consumers to shop around and find competitive coverage.”

That hope rests on a combination of market adaptation, regulatory reform, and public awareness. As insurers gain more tools to model and price risk accurately, more carriers may return — offering new products that balance protection with affordability.

For now, the key is education and preparation:

• Know your policy.
• Mitigate your risks.
• Understand your rights.
• Stay engaged with your broker and local insurance updates.

The insurance market may still be in crisis, but it’s not collapsing. It’s transforming — just as it has done after every major disruption in its history.

Final Thoughts: Resilience in the Face of Fire

California’s relationship with fire is as old as the state itself. What’s changing is how we manage the aftermath — financially, structurally, and communally.

Insurance is not a luxury here; it’s a lifeline. And as Susman reminded viewers, the system, though strained, still works to protect those who need it most.

“The Department of Insurance is here to protect consumers,” he reiterated. “And that’s exactly what it’s doing right now.”

In a time when fire seasons feel endless and premiums seem to climb as high as the flames, that reassurance matters. Because recovery — like insurance itself — depends not on eliminating risk, but on sharing it wisely.