New insurance rules mean homeowners throughout California are likely to pay more after fires

A recent rule change could cause a spike in insurance premium for homeowners across California, as the costs of the Los Angeles area wildfires are passed onto them in a way that was not allowed in the past.

A recent rule change could cause insurance premiums to spike for homeowners across California, as the costs of the Los Angeles area wildfires are passed onto them in a way that was not allowed in the past. The hikes would come from a potential assessment likely to be levied by California FAIR, the program set up by the state as the insurer of last resort for homeowners whose fire insurance has been canceled by companies seeking to limit their risks. In the past, assessments to cover claims from large events, such as the costly wildfires in 2017 and 2018, ended up coming out of the insurance industry’s bottom line. And those big events could not be used as a justification to raise premiums for other policyholders around the state. The industry reported large losses in those two years from wildfires that essentially wiped out a decade worth of profits. But last July, State Insurance Commissioner Ricardo Lara announced a little noticed change in the state’s rules governing insurance rates that allows much of that potential cost to be passed onto homeowners throughout California in the form of higher premiums. The final cost of insured losses from the fires, both from California FAIR and private insurers, is not yet known, but it’s estimated to be in the tens of billions of dollars. And it appears that this rule change, along with another rule change announced in December, will allow insurers to raise premiums throughout California, even on those living in areas with little or no risk of wildfires. The July rule change allows insurers to cover the costs that California FAIR passes onto them to recoup 50% of the first $1 billion in assessments they are hit with and 100% of all assessments above that level. The December rule change, announced just days before the fires in Southern California started, allows insurers to include the cost of reinsurance policies – insurance companies’ own insurance – they purchase when calculating homeowners’ premiums. Neither cost had been allowed when calculating premiums before.