THE PRICE OF DISASTER

The insurance market in California sends warning signs nationally

- ALANA SEMUELS

The insurance market in California sends warning signs nationally INSURANCE COMPANIES WERE WORRIED ABOUT the Pacific Palisades neighborhood of Los Angeles long before devastating wildfires burned through the area, ravaging homes and forcing evacuations. The Palisades, because of its location next to the brush-heavy Santa Monica Mountains, was too vulnerable to fires to insure at permissible rates without losing money. Insurers including State Farm, which dropped nearly 70% of policyholders in Pacific Palisades in July 2024, refused to offer new insurance plans or renew old ones.

As a result, many homeowners were forced to obtain coverage from the state's insurer of last resort, the California Fair Access to Insurance Requirements (CA FAIR) Plan, which covered 1,430 homeowners in the Pacific Palisades ZIP code of 90272 in September 2024, an 85% increase from 2023. The FAIR plan insures homes against fire, but has higher premiums than traditional insurance and only covers up to $3 million in damages for residential properties.

Like many other insurers of last resort in the 33 other states with this type of system, the California FAIR Plan is buckling under the weight of natural disasters worsened by climate change. “I’m concerned that we’re one bad fire season away from complete insolvency,” said Jim Wood, then a California assemblyman, at a March 2024 hearing in which CA FAIR Plan President Victoria Roach explained that it had just $200 million of cash on hand, with $450 billion of exposure in the state.