California: Fires hit homeowners amid insurance company crisis

Homeowners in California are living through the insurance crisis amid the major fires that have swept through the state in recent days. Many of the companies began canceling insurance policies just months after the fires started.

Because of red tape and state regulations, between 2020 and 2022, insurance companies refused to renew at least 2.8 million homeowners’ policies in the state, according to the most recent data from the California Department of Insurance collected by CNN. This number includes 531,000 in Los Angeles County, where fires are currently raging.

It's a situation that is acknowledged by state Insurance Commissioner Ricardo Lara and consumer groups, who detailed that the problem has continued to grow, mainly over the past decade.

Although the insurance issue has been on the books for a couple of years, the recent fires in the state have reopened the debate. The information resurfaces at a time when the Eaton and Palisades fires have burned more than 40,000 acres (16,000 hectares) and left at least 25 dead.

And it is estimated that, after the catastrophe, many insurance companies will continue to leave the state due to a law that dates back decades. As Fox Business recalled, in 1988, California voters approved Proposition 103, which gave the California Department of Insurance the power to approve rates or even reduce them.

As a result, insurance companies that want to raise rates must go through a regulatory process that can take months or even years, hindering their ability to properly adjust rates to cover their losses and assess risk.

"Prop 103 is essentially price controls. ... It puts the kibosh on the ability of insurance companies to adjust the rates to meet the market," Steven Greenhut, western region director for the R Street Institute in Sacramento, explained to Fox.

Although Democratic Gov. Gavin Newsom's administration has pushed through measures to address the situation, it hasn't been enough. In the state, an initiative can’t be changed unless it's put to a vote. So far, there hasn't been enough political incentive for Proposition 103 to be re-evaluated.

In the meantime, other initiatives such as the creation of the FAIR Plan, a state-created insurer of last resort that offers expensive, basic policies, have been promoted.

However, according to Greenhut, as the number of FAIR Plan policies has far exceeded what it was intended to support, there have been some opinions that the plan may declare bankruptcy.

"Now we have these big wildfires in Southern California, which are horrific. And we'll have to wait and see the result, but it's another huge problem," Greenhut said.