Fires tearing through Los Angeles County have raised new fears about the cost and availability of home insurance.

After years of soaring rates, policy cancellations and insurer exits from the California market, some expect the fires that have destroyed more than 2,000 homes around Los Angeles will upend current insurance reforms, the Orange County Register reported.

But California Insurance Commissioner Ricardo Lara insisted this week the firestorms won’t make insurance harder to get. He called new regulations hammered out over the past year a “game changer.”

“Insurance companies are pledging their commitment to California, and we will hold them accountable for the promises they have made,” Lara said in a statement.

The regulations give insurance companies more leeway in raising rates, while allowing them to use computer modeling to forecast risk. They also allow insurers to incorporate their own “reinsurance” costs from backup providers in setting future premiums. 

In return, insurance companies are required to write a minimum number of policies in wildfire-prone areas, based on their market share.

“Six months ago, we wouldn’t have been in this position,” Michael Soller, spokesman for the state Insurance Department, told the Register. “We have that confidence that our regulations are in effect, and it’s going to change the insurance picture for people.”

Some insurance industry representatives agree, saying Lara’s regulations will provide a more realistic path forward while stabilizing rate hikes. Under the old rules, rate hike reviews took too long, industry representatives said.

“The market is not going to work unless there is the ability of companies to price to the risk that they face and to get a rate approval from the state in an appropriate amount of time,” Rex Frazier, president of the Personal Insurance Federation of California, a trade group representing companies that providing 75 percent of policies in the state, told the newspaper.

If anything, this week’s wildfires are an example of why reforms are needed, Janet Ruiz, the Western U.S. spokesperson for the Insurance Information Institute, added.

“Insurance companies want to be in California. It’s the largest insurance market in the country,” Ruiz told the newspaper. “But we have to be able to make some profit, and that hasn’t been the case in recent years.”

The economic toll from this week’s wildfires across L.A. County could reach $50 billion, according to J.P. Morgan, which doubled its forecast from a day earlier. A preliminary estimate by AccuWeather pegged the economic loss between $52 billion and $57 billion, which could rise as the fires consume more properties, according to the Los Angeles Times.

“It is plausible that the Palisades Fire in particular will become the costliest fire on record, period. Not just in California, but in general,” UCLA climatologist Daniel Swain told Bloomberg News.

Because insurance rates are based on catastrophic losses, Ruiz and Frazier said, providers should be able to handle the claims these fires will generate.

But one analyst told The New York Times that insurance companies could see a drain on their reserves from this week’s wildfires. Another analyst said the number of homes in Palisades Fire ZIP codes that are enrolled in the state’s insurer of last resort, the FAIR Plan, nearly doubled last year from 2023. 

If the FAIR Plan can’t cover all the claims from this week’s wildfires, insurance companies operating in the state will have to cover the difference, according to the Register.

— Dana Bartholomew

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