January 21, 2025
And … What Now? Where Does the California Insurance Market Head in 2025.
The devasting Southern California Wildifres are still burning. Foks are still evacuated, Firefighters still out on the line. As we begin to comb through the wreckage [and mistakes] we are left to ask the outrageous question of Where Does the California Inusurance Market Head Now?
In this blog post, we dont have many answers – just an obsessive amount of questions. As we JUST finished penning a piece about the Crazy California insurance market landscape in 2025, and the California DOI – just instituted new regulations that essentially “cajoled” insurers back into the admitted market…. the horrendous Pacific Palisades and Eton Fires began.
Please note that this post is not about the sad claims situations and loss of housing in Los Angeles – its about what it means for the rest of the state. Being a norcal broker/agent – its frankly the most pressing issue that insureds are dealing with up here. [For the record our hearts go out to the Californians that lost their lives and property during this tragic conflagration. Our appreciation goes out to the firefighters [both public and private] and other emergency officials that worked so hard during this emergency.
The CA DOI Sets the Stage:
The Department of Insurance in California recently set out a new set of rules. According to CBS News: “Under a new insurance regulation that just got approved this week, California Insurance Commissioner Ricardo Lara said homeowners should have an easier time buying fire insurance.” The action is based on helping lure more admitted insurers back into the state to offer more coverage. “Commissioner Lara announced on Friday his plan, to allow companies to use catastrophe models and climate change to set higher rates…. He said in exchange, companies promised to sell policies in areas with the greatest fire risks, areas like Wine Country, the Santa Cruz Mountains, and the Oakland Hills.”
While numerous articles made this law/edict appear like a done deal, this law was of course only half the situation. It did require insurers to come out and support it. Initially some insurers did come out and say, in a round about way, that they would be willing to offer up more policies [Farmers and perhaps Mercury.] But… as of Jan 1st of 2025 – we were mostly still waiting.
Well wait we might just do – for awhile.
Enter the Horrendous Fires:
We wont spend much time reviewing the 2025 January fires of Southern California here – there is tons of news coverage. Tons. As of the writing of this blog post, both fires consitute the 2nd and 4th most destructive fires in California history. And They are burning at the same time! Loss of life is very signicant. Both tallys are sure to climb and the fires are still burning and the winds still blowing. Its not just homes though that burned, but also commercial buildings. Gas Stations, Schools, Stores…and of course scores of autos. What caused them? So far we really do not konw.
These fires will change insurance in California in the current year: 2025. But how – we just do not yet know.
And Now the Open Questions:
We dont have answers as to what will happen – just questions.
First off and most important – How will the State of California help and support all those displaced by the mega fires?
Will all the insurers that committed to protecting these Californians – be able to meet and pay all the legitmate claims? Unbeknownst to some, insurers can not support all homes burning down in the same event – there is just not enough money for that. Yes they have reinsurance.
What about the California FAIR plan – the so called insurer of last reorts. Will the CA FAIR plan be able to meet all of its claims? According to the CA FAIR plan page their exposure to “Pacific Palisades: is about 5.89 Billion and ranks about 5th on their list of exposures by area.”
Will the So Cal Fires of 2025 increase premiums for most Californians? It would seem obvious that if up to 12,000 structures were to burn, than premiums need to go up across the board. But assumptions can be …. wrong.
How about the Financial Strength Ratings of these insurers? Some reports put Mercury and AAA with the highest percent of their national business in California. And the smaller insurers – can they absord these losses? Other reports seem to point to State Farm and FAIR as having the largest exposure.
How will the reinsurance and treaties be affected? Will these events trigger widespread reinsurance payouts? Before you assume yes, know that these things are …. complicated.
There looms the big question of State Farm. Their CA subsidiary – State Farm General currently has a financial strenght rating of a B+ – will their FSR be downgraded? What happens if they get downgraded below a B. B is the rating that Fannie Mae requires. According Fannie Mae they require a ““B” or better Financial Strength Rating” from “AM Best Company.” [They do accept other rating agencies as well.] Yes State Farm is owned by a National Mutual – bu are they required to salvage them?
Will the FAIR plan need to assess the Admitted Insuers in the State? There is a new law out there – that may allow the admitted insurers to essentially bill down to the client level. This is all very unclear. But one thing is for certain is that if the FAIR plan needs to bailed out, Admitted Insurers are likely to be involved and consumers may be involved either directly or indirectly.
When will all of this Insurance Inflation [or Insuranceflation ] end? Will Insurance Costs just continue to go up forever? Will cost per square foot increases stop and level off?
Will these two wildfires be the bulk of destructive wildfire damage for 2025? Will there be more wildfires in the year of 2025?
What is the risk to the greater US Economy from these severe wildfires? Is there an economic effect that spreads beyond So Cal?
How and What California DOI regulations might change? We have already seen a slew of changes in 2024 for the insurers – are more changes coming?
What, if anything, will happen to the California Insurance Guarantee Fund? “CIGA is a statutory association…. to pay claims for insolvent insurers and funded by assessments of Member Insurers…. We have three separate funds organized by line of business that cover (1) workers’ compensation claims, (2) homeowners and automobile claims…(3) all other claims” Source. Mind you not all policies sold in California are backed by CIGA.
