The Los Angeles wildfires are putting more pressure on California’s already flailing property insurance market — and lawmakers are facing a tough political choice.
Solving the state’s insurance crisis requires decisions about who pays for people to live in the riskiest areas, but the solutions are complicated, politically unpopular and don’t fall on clean partisan lines.
As one insurance ratings agency told NOTUS, Florida has similar problems.
“Florida is several years ahead of California, so California is following in the path of Florida. And as such, California may have — if it wakes up, if the government wakes up — may have an opportunity to avoid some of the mistakes that Florida made,” said Weiss Ratings founder, Martin Weiss, who is based in Florida.
Weiss pointed to both states’ limits on insurers’ abilities to raise rates, creating an unsustainable market that ignores the reality of the cost of living in disaster-prone areas. One of Florida’s big solutions — incentivizing new, often unstable insurance companies to enter the market — has left the state on an “insurance island,” according to Weiss.
But raising rates for consumers — and facing the reality of unsustainable growth in disaster-prone states in the face of climate change — isn’t a popular pitch for either political party.
California has tried and failed to use regulation to create a Goldilocks insurance market — one where insurance is affordable, available and the insurers are solvent.
To do so, the state has prohibited insurers from dramatically hiking prices. But in response, insurers have left the state, proving that it’s not really possible to have all three at the same time, said Jacob Gellman, a researcher at the University of Alaska and the co-author of a recent report on how wildfires have shaped the insurance market in California.
Now the state’s fallback insurance program is covering far too many people (just like the state-provided program in Florida), including a big swath of the people who have lost their homes in the fires this week. In the last year, insurers dropped thousands of people in the Pacific Palisades, where fires are currently raging.
The country’s current leadership gave a passing wave to the problem — with an almost wistful tone at the prospect of any solutions.
“Sadly, many insurance companies have canceled insurance for a lot of the families that have been affected,” Vice President Kamala Harris told reporters Thursday. “Hopefully there can be some way to address that issue.”
California’s regulator, facing risks that could eventually lead everyone in California to have to pay more in the event of a disaster, issued major reforms to entice insurers to return, including allowing reinsurance costs to be passed onto consumers.
These changes would bring the insurance market back to more of a free market and almost certainly mean higher costs for those purchasing insurance, particularly in wildfire-prone areas where homes just burnt down.
Consumer Watchdog, a Los Angeles organization that opposes the proposed regulation, told NOTUS the proposed changes do little to incentivize fire mitigation and don’t go far enough in requiring companies to take on fire-prone properties. Those rules are set to be finalized at the end of this month.
In the long run, some consumer advocates are hoping Congress will step in with a federal reinsurance program — secondary insurance that insurers buy to cover them in case of an emergency. It’s a proposal new Sen. Adam Schiff proposed in the House last session, but the measure only garnered Democratic support.
“The problem with reinsurance is now it’s sold by Wall Street people at very expensive prices, it’s an unregulated market,” Consumer Watchdog’s president, Jamie Court, said. “A government reinsurance pool could be really affordable.”
Still, substantial government intervention isn’t popular on the right, where some insist the free market can fix the problem.
“The competitive market really will take care of itself, it seems every time that we come in and meddle with the competition within the insurance market, whether it’s in Florida or California, there’s unintended consequences that happen,” Florida attorney Mike Morgan told former Rep. Matt Gaetz on his new OAN show. “And now we’re in a place where we’re uninsured for predictable catastrophic events.”
But there’s no guarantee insurers are going to return at all after this week’s destruction, even with the reforms from the regulator.
If they do, it could create a new political problem: Affordable homes could see huge price spikes, because most of the affordable homes are in the highest risk wildfire areas, Gellman said.
“Society is facing an issue right now where we have heavily regulated building in central cities, and it has pushed development out to suburban areas. That has become a problem in places like California where the affordable places to build are in the wild and urban interface,” Gellman said.
Longer term, the only real solutions that could bring insurance costs down are building more affordable housing in fire-safe areas or subsidizing insurance costs, Gellman said, emphasizing that he is only describing the possible outcomes, not advocating for subsidies.
But with few good answers to the complex insurance problems in disaster-prone states like California and Florida, lawmakers are angling to score quick political wins.
On social media, President-elect Donald Trump has blasted California Gov. Gavin Newsom’s response to the wildfires with posts that put several Democratic lawmakers on edge about whether disaster aid would come through under the incoming administration.
Republicans are eager to jump on the bandwagon. California Rep. Darrell Issa trashed his state’s leadership to reporters Thursday.
“Let California stop being independently stupid,” he said.
In Sacramento, state Assembly and Senate lawmakers began a special legislative session on Thursday with the intention of helping the state prepare to battle the incoming Trump administration.
“It’s astonishing,” California Rep. Kevin Kiley, a Republican in Congress, told NOTUS. “How could that be the priority at this moment in time when you have the level of suffering that we’re seeing in L.A. This needs to be a situation where every hand is on deck to try to get the situation under control, and for them to be doing this political exercise in this moment, it’s appalling.”
California Speaker Robert Rivas defended the Assembly’s session to reporters, arguing that the state can work to prepare for the incoming Trump administration and the raging fires at the same time.
“My colleagues and I are acting with great urgency to ensure we are providing much needed relief to Angelenos,” Rivas told KCRA 3. “We understand what it will take for this region to recover and to support those who have been most impacted by this disaster.”
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Claire Heddles and Mark Alfred are NOTUS reporters and Allbritton Journalism Institute fellows. Anna Kramer is a reporter at NOTUS.