FOX Business Sherrill Cassone joins Fox & Friends First to discuss California's insurance crisis as wildfires ravage Los Angeles and broader concerns about the industry moving forward.
D Severe fire A significant number of homes destroyed hit Southern California this week after some leading insurance companies pulled back on policies in the Golden State due to the increased risk of wildfires in recent years, as well as a challenging regulatory environment.
Several ongoing wildfires have devastated communities in the region, including the Palisades Fire and the Eaton Fire Los Angeles areaincluding Pacific Palisades and Altadena. Wildfires have burned nearly 30,000 acres amid a Santa Ana wind event, with at least 130,000 people in the area under evacuation orders. The fire killed at least five people and destroyed more than 1,000 buildings.
State Farm, California's largest home insurance company, announced in March 2024 that it would end coverage on 72,000 home and apartment policies over the summer. The company cited inflation, regulatory costs and the rising risk of disruption for its decision, and had earlier stopped accepting new applications in the state.
Several other leading insurers, including All State, Farmers and USAA, have also curbed new policy applications in California in recent years as part of an effort to limit their exposure to policies that allow state regulators to cover what they see as unreasonable risks. Policyholders to charge them. Factors similar to increased risk, higher repair costs and rising reinsurance premiums were cited in those decisions.
California wildfires ravage Los Angeles County, 5 dead and thousands of homes threatened
Smoke plumes from a brush fire are seen in Pacific Palisades, California on January 7, 2025. A fast-moving brushfire in suburban Los Angeles burned buildings and “life-threatening” winds whipped the region Tuesday. More m (David Swanson/AFP via Getty Images/Getty Images)
This week's wildfires have brought renewed attention to the fact that insurers are no longer accepting new policies or refusing to renew old policies in California communities at high risk of wildfires, as prominent entertainment industry figures called for measures in the wake of the disaster.
James Woods, an actor who owns a house Southern California The area scorched by the Palisades Fire, X wrote in “a major insurance [sic] Companies canceled all policies around us about four months ago.”
Actor Rob Snyder criticized State Farm in a post on X, writing, “You and all your phonies. [sic] Advertisement!! You Californians are a pile of crap for canceling their insurance policies! I will never use State Farm Insurance again!”
“Our number one priority is the safety of our customers, agents and employees and supporting our customers in the midst of this tragedy,” a State Farm spokesperson said in a statement to Fox Business.
State Farm cuts 72,000 California home insurance policies: 'Decision not taken lightly'
The spread of the Palisades fire has been mapped. (Fox News)
the state California home insurance market Companies have struggled in part because of regulatory limits on what they can charge policyholders in premiums, as well as mounting exposure to wildfires and other severe weather events that have climbed payouts and squeezed the reinsurance market.
California voters approved Proposition 103 In 1988, which was intended to protect insurance policyholders from unfair rate increases required insurers to obtain approval from the California Department of Insurance for increases of more than 7%. The law also limits rate increases and spreads any increases over three years.
California wildfires quickly scrutinized as federal, state regulations hamper mitigation efforts
Firefighters battle the Palisades Theater fire during a powerful storm on January 8, 2025 in the Pacific Palisades neighborhood of Los Angeles. (Apu Gomes/Getty Images/Getty Images)
While insurers can and do get approval for larger increases – State Farm requested a 20% increase in home and auto premiums in January 2024 and later requested a 30% increase for home policies last summer – the process is time-consuming and the size of it could be approved by regulators. Rate increases may not be enough for insurers to continue paying policies during their savings Financial stability.
By curbing insurers' ability to raise rates for increased risk, it keeps insurance plans artificially low for consumers. This means insurance companies face a decision between keeping excess financial exposure on their books or taking steps to limit their exposure or leaving the market.
The state of California offers what is called a FAIR plan as an insurer of last resort for consumers who were unable to secure a plan in the private market. However, policies are still expensive and insurers are concerned about the sustainability of FAIR plan growth.
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FAIR plan exposure increased by $174 billion, or more than 61%, from September 2023 to September 2024, while its residential exposure reached $458 billion. The number of residence policies in effect under the FAIR plan increased from 320,581 to 451,799 during that period, while they increased by 248,902 or 123% from September 2020.
“The FAIR plan continues to grow in size as consumers find themselves without coverage. As a result, we've doubled in size in the last three years,” FAIR Plan President Victoria Roach said at a hearing in March. “As the numbers grow, our financial stability comes more into question.”