I get it, I really do. The insurance companies are the bad guys, yada, yada, yada.
And they did, in fact, cancel a bunch of fire insurance plans in Southern California.
Several private insurers have cut coverage in at-risk areas across California in the past three years, leaving homeowners scrambling to find options for coverage.
"Luckily," California has a state-sponsored backup plan that only costs an arm and a leg:
California's FAIR Plan, which works as an insurer of last resort in the state, has more than doubled its policies between 2020 and 2024, reaching a total of 452,000, as reported by CapRadio.
But people are still demonizing the insurance companies for these cancellations, especially now as four fires wreak havoc on the greater Los Angeles area.
But is it some sort of conspiracy theory?
No, it's not.
The reasons for the insurance cut are two-fold:
The state is making it difficult for insurance companies to do business there through excessive regulation and fees.
The City of Los Angeles has mismanaged resources in protecting these neighborhoods from the increasing risk of fire.
The city has been criticized for not filling critical water reservoirs, not maintaining aging power lines, not adequately clearing brush, allowing sprawling homeless encampments with open fire pits on windy hilltops, and prioritizing "diversity" in the fire department over competency and training.
I'll give you more from the Newsweek article I quoted above.
Most insurers who have limited their offer in the state mentioned the rising wildfire risk as well as the state's regulations as the main reasons behind their decision. Unable to increase their premiums to a level that will match their growing risk, companies have decided instead to cut coverage.
…
In a letter sent to the Insurance Commissioner Ricardo Lara in March 2024, State Farm President and CEO Denise Hardin explained that the decision to cut coverage in at-risk areas of the state was one they were ‘reluctant' to make, but that was necessary for the future of the company.
‘As shared with the Department prior to the February 2023 filing, rate increases alone would likely be insufficient to restore SFG's financial strength,' Hardin wrote. ‘We must now take action to reduce our overall exposure to be more commensurate with the capital on hand to cover such exposure, as most insurers in California have already done.
‘We have been reluctant to take this step, recognizing how difficult it will be for impacted policyholders, in addition to our independent contractor agents who are small business owners and employers in their local California communities.'
In essence, we can't expect insurance companies to insure properties which are at-risk for these huge wildfires when they're not allowed to increase their rate to a price that matches the risk.
