Destroyed homes are seen as the Palisades Fire continues to burn on Jan. 9, 2025 in Pacific Palisades, California. Multiple wildfires fueled by intense Santa Ana Winds are burning across Los Angeles County. (Mario Tama/Getty Images)
This story first appeared in CalMatters.
The deadly and destructive fires in Los Angeles — which some say could be the costliest in the state’s history — will further strain the insurance market and worsen the financial position of California’s insurer of last resort.
Data about Pacific Palisades, the devastated LA neighborhood whose residents include movie stars and directors, help illustrate the insurance problems plaguing the state. An estimated 1 in 5 homes in the upscale neighborhood were covered by the insurer, known as the FAIR Plan.
Property owners in California have increasingly been turning to the plan, a pool of insurers required by state law to sell fire policies to consumers who can’t find regular insurance elsewhere. That’s because, for the past few years, insurance companies have been canceling policies or refusing to write new ones in California, citing rising risk of wildfires. As a result, the FAIR Plan’s number of homeowner policies grew to more than 451,000 as of September 2024, an increase of 123% over the past three years.
Last year, State Farm decided not to renew tens of thousands of policies in the state, including about 1,600 in Pacific Palisades. As of September, there were 1,430 residential FAIR Plan policies in the enclave’s 90272 ZIP code, an 85% increase from the previous year, according to the plan’s latest data.
Elsewhere in Los Angeles, some cities and neighborhoods with spiking FAIR Plan use have either been evacuated or are near the fires. They include the 90402 ZIP code in Santa Monica, where FAIR Plan policies have increased 128% year over year.
Now, after at least five people have died and more than 2,000 structures have been destroyed in the LA area, and as those who have lost their homes begin to submit claims with their insurance companies, there’s a big question mark around the state’s plan to try to ensure insurance availability. A plan touted by Insurance Commissioner Ricardo Lara as a way to get insurance companies to write policies in the state again just became effective at the beginning of the year.
The so-called sustainable insurance strategy includes having the state speed reviews of rate hike requests from insurance companies and allow insurers to use catastrophe models when setting their premiums. Insurers would also be able to adjust for the cost of their own financial backstop, known as reinsurance. The concessions mean insurers will raise premiums for the state’s property owners but in exchange must write or maintain a certain number of policies in high-risk areas.