San Bernardino County residents this week were given a close perspective of the political dysfunction that has resulted as a consequence of the sharp partisan divide between their Republican-dominated county governmental structure and the vice-lock Democrats have over California’s state government.
At issue, and consequently given short shrift, is the difficulty many California homeowners and businesses, as typified by ones in the desert and mountain areas of San Bernardino County, in obtaining and/or retaining insurance coverage on their homes or business operations, most particularly fire insurance.
Over the last decade wildfires in California have increased dramatically. The number of fires scorching 10,000 acres or more began to rise substantially beginning in 2005. Of the 20 largest wildfires in the Golden State between 1950 and 2023, 18 occurred since 2000. Ten of those eighteen took place in the two-year period of 2020-21.
Consequently, the cost of homeowners or business insurance including fire coverage began a steady increase years ago and then escalated more rapidly still beginning in 2020.
Underwriters evaluate the risks involved in insuring people and assets. Traditionally, they used actuarial data and algorithms, and in the digital age specialized software, to determine the likelihood and magnitude of each risk they would take on, adjusting the costs of the polices accordingly. With the sheer number of fires and the amount of devastation as a result of those fires increasing all over California in recent years, insurance companies found themselves in the 2020-22 timeframe paying out more money, on an annual basis, than they were taking in.
Years ago, state policymakers and legislators, recognizing the sometimes cyclical nature of disasters and anticipating the potential that a string of catastrophic events could result in a crisis in which the entire insurance industry failed, such that insurance companies might not be able to make payments to claimants or a large number of claimants, took steps to head off such a crisis.
In 1968, following the riots and brush fires that had occurred earlier in that decade, the California Fair Access to Insurance Requirements – FAIR – Plan was established by the California legislature. FAIR became the state’s insurer of last resort, providing access to fire coverage for California homeowners unable to obtain it from traditional insurance carriers.
The FAIR Plan offered what was essentially minimal coverage at rates that were typically higher than what was charged by underwriters in the insurance industry. Nevertheless, it was a godsend to those homeowners who or businesses which were considered to be too risky to cover by conventional insurers.
Twenty years later, in 1988, California voters enacted Proposition 103, which established consumer protections designed to keep insurance rates fair and affordable and to ensure a competitive marketplace.
The seemingly endless round of catastrophic wildfires in the late 2010s and early 2020s prompted insurers to request that the state suspend or mitigate many of the limitations and restrictions on insurance companies under Proposition 103. When the state – meaning the governor, the legislature and the California insurance commissioner – did not act on those requests, insurance companies initiated major shifts in their business models, including raising rates to the full extent that they could under Proposition 103 and becoming more and more selective about which homes and businesses they would ensure, refusing in some cases to underwrite policies in high-risk fire areas.
In 2022, American International Group notified thousands of homeowners in California that its policies would not be renewed following their 2023 expiration. On May 26, 2023 State Farm General Insurance Company and on June 2, 2023, Allstate, California’s first and fourth largest insurance carriers, respectively, representing over 27 percent of the admitted insurance market in California, announced they would stop or had stopped issuing new homeowners and commercial property insurance policies in California. Simultaneously and since, several other insurance companies, representing an additional 36 percent of the market, announced plans to limit new policy origination.
The Fair Access to Insurance Requirements Plan, which was already under considerable strain, with the increase in fire destruction in recent years found itself really being put to the test beginning in 2019. At that point 160,497 homeowners throughout the state had coverage through FAIR. Applicants asking to be allowed onto the FAIR rolls came in at an alarming rate. Whereas previously, inquiries ran between 10 and 20 per day, Monday through Friday, that number zoomed to around 140 per day, five days per week. Enrollment in the Fair Access to Insurance Requirements Plan jumped to 272,846 homes in 2022. It has continued to rise. The prospect that FAIR will collapse of its own weight if the pattern of intensified and increased wildfires continues is real.
In San Bernardino County, the insurance crisis was most acute in its desert and mountain communities. While fire and its destruction was, and remains, the major complicating factor in this regard, the San Bernardino County Mountain communities – both those in the San Bernardino Mountains/San Bernardino National Forest and in the San Gabriel Mountains/Angeles National Forest were hit with an intense blizzard that lasted from February 21 until March 10, 2023, resulting in and estimated $143 million in damage within the San Bernardino Mountain communities alone and not extending to the damage in the easternmost portion of the San Gabriel Mountains within the area of the Angeles National Forest that lies within San Bernardino County. Many homeowners and property owners in the county’s mountain areas filed insurance claims, further exacerbating the crisis within California’s insurance industry.
Last month, San Bernardino County officials prepared for the San Bernardino County Board of Supervisors’ consideration a resolution that cited…