California Bars Home Insurers from Shedding Policies in Wildfire-Hit Areas

California home insurance policyholders in and around the areas of the Palisades and Eaton fires received some welcome news from the state’s department of insurance last week.

Insurance Commissioner Ricardo Lara issued a one-year moratorium on home insurance policy cancellations and non-renewals for those living in the Palisades and Eaton fire areas or in surrounding ZIP codes affected by the ongoing wildfires. The commissioner is also asking insurers to suspend any policy cancellations or non-renewals that homeowners received before the fires started.

“This means that if you received a non-renewal from your homeowner’s insurance between Oct. 9 and Jan. 7, essentially 90 days, your insurance company should do the right thing and retain you as a valued policyholder,” Lara stated.

The moratorium comes on the heels of Gov. Gavin Newsom’s declaration of emergency Jan. 7.

California’s challenging insurance environment

California has long been a mixed bag for insurers. The most populous state also has strict price controls and severe weather that can make an otherwise lucrative market less appealing.

The tough regulatory environment and catastrophic losses have exacerbated the state’s insurance woes.

Since 2022, seven of the top 12 property insurers in California have either paused or restricted  new home insurance policies in the state. State Farm and Allstate exited the California property insurance market in 2023, largely due to the increased risk posed by wildfires in the state.

The California Department of Insurance (CDI) has since responded by releasing a sustainable insurance strategy. The move aims to address the challenges inflation and climate change-related disasters have caused for the insurance industry. The strategy offers insurers better rates in exchange for their agreement to increase the amount of business they do in high-risk areas.

The plan appeared to be working, with Farmers pledging to increase its policies written in California earlier this month.

But these recent wildfires could make insurers adjust their strategy.

What’s next? Focused on recovery

“Our top priority is protecting Californians during this crisis and helping us to recover,” Lara said in announcing the moratorium.

The ongoing wildfires have killed at least 24 people and destroyed more than 12,000 homes, businesses, and other structures.

Total insurance losses are likely to reach $30 billion to $40 billion, according to financial analysts at Wells Fargo Securities. “Regardless of outcome, we see this as a manageable event for insurers,” the Wells Fargo analysts wrote.

They added that a total insured loss of $40 billion would represent a 2% equity hit to insurers.

Lara hopes the moratorium will prevent a repeat of the aftermath that followed the destructive wildfires in 2017 and 2018. Following those disasters, insurance companies dropped tens of thousands of policyholders. Many went on to secure coverage through the state’s FAIR Plan.

“I am using my moratorium powers to prevent insurance companies from canceling or non-renewing policies in wildfire-impacted areas so people don’t face the added stress of finding new insurance during this horrific event,” Lara stated.

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