FAIR Plan: CA insurance rates out of proportion to risk, cost – Capitol Weekly

Every California homeowner wants low insurance rates. As an insurance seller, I want the lowest price for all my customers, whether they live in the city, near the forest or the mountain. Even so, I would accept the higher rates if they made the insurance market healthy and avoided the panic many Californians face when they lose coverage.

Increasingly, California residents were left with no choice but to accept the California FAIR Plan, the ultimate insurance policy, and the higher premiums that come with it.

FAIR Plan offers fire insurance coverage when traditional insurance is not available, often for things that other insurers refuse to cover because they are considered risky. The FAIR Plan is designed to act as a temporary protection until traditional insurance options become available.

The increased risk is real. Since 2013, the number of acres burned in wildfires and the number of homes destroyed per acre burned have increased.

But, as our country suffers from chronic drought and other effects of climate change, an increasing number of homeowners find themselves living in areas that are now considered to have a high risk of wildfires, and the FAIR Plan is their only option.

The California Department of Insurance (CDI) has the authority to approve or deny the price increases. However, CDI has refused to accept the price hike that insurance companies say is necessary to protect against the risk of wildfires in many parts of the state. As a result, insurance rates have not kept pace with the risks and costs faced by insurers. This has to change.

The increased risk is real. Since 2013, the number of acres burned in wildfires and the number of homes destroyed per acre burned have increased, indicating that California’s wildfires have been. very much and effective, according to Milliman, an international consulting and consulting firm. All eight of the largest California wildfires in history the last five years alone.

The effects of wildfires have taken a toll on the insurance industry. From 2016 to 2019, insurers collected $37 billion in damages from the California wildfires, more than $32 billion paid by homeowners.

Insurance is effective if the premiums are sufficient to cover losses in the event of an accident. As the risk and severity of disasters increase, so do the prices. Most insurers want to manage risk by spreading the spread across different areas of the product, so the risk is only a small part of their portfolio.

As the ultimate insurance policy, the FAIR Plan is left to cover a large risk pool.

Although climate change has greatly increased the risk of disaster, California’s trees have been preserved low productivitywhich is evident in comparison with the rest of the nation.

With CDI filings expected, many insurers are refusing to add or renew thousands of homeowner’s policies and avoid settling, which is a full risk. manage risks that are escalating and potentially dangerous issues related to the spread of wildfires. As risks and costs increase for insurers, some companies are considering pulling out of California altogether, putting financial pressure on the rest of the market.

As the ultimate insurance policy, the FAIR Plan is left to cover a large risk pool. Because the FAIR Plan has high risk policies, its policies are more expensive than those offered by private carriers.

CDI has taken steps to address the insurance problem, such as placing a to be suspended on the policy of homeowners not renovating in or near areas that the governor has declared to be at risk.

The insurance regulator is also trying to force the FAIR Plan to increase its coverage, the current issue cases, while continuing to keep prices low. Expanding FAIR Plans would stifle competition and could force other insurers out of the market, which would mean higher premiums for many homeowners.

California’s insurance crisis will continue unless the California Department of Insurance approves rates that reflect the true cost of increased risk. Doing so will make the market more competitive for the benefit of all consumers.

Ultimately, better insurance coverage and availability will lead to a healthier market for a stronger country.

Editor’s Note: Aurora Mullett is the owner of Intrinsic Insurance Services, an independent insurance company located in Orangevale, Calif.

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