While insurance may be cold comfort in the wake of natural disasters, many of the Californians whose properties and cherished possessions were destroyed in the recent of fires that ravaged Los Angeles are waking up to the reality they cannott even rely of insurance to rebuild.
Best estimates suggest that the decisions by private insurers, including the likes of Allstate and Farmers Insurance stop covering catastrophes in disaster-prone California, has left around 10% of Los Angeles’ 1.6 million homes within this essential insurance cover.
It’s understood that many of the residents in the classy Pacific Palisades neighbourhood - where many houses were lost – were not covered for fire.
Due to the spiralling costs of extreme weather and natural disasters, many private insurers in the US, including Allstate and Farmers Insurance have stopped covering catastrophes within standard insurance cover.
For example, State Farm last year refused to renew policies for 30,000 home-owners in California, including about 70% of those in the fire-ravaged Pacific Palisades area. Admittedly, some insurers may still provide fire and catastrophe as additional cover, but when they do it is typically out of the reach of many.
Home-owners can be left with only two options: the last-resort California Fair Access to Insurance Requirements Plan, known as the FAIR Plan, or simply no cover.
Unsurprisingly, the number of California’s with FAIR Plan residential policies - which caps home damages at US$3 million – is up 40% to 451,000. In Pacific Palisades where the plan, has 1430 policies, typical home is valued at US$3.4 million.
However, beyond spiralling costs facing insurers covering extreme weather events, the finger is also being pointed at excessive regulation. Insurers have become used to experiencing excessive delays - sometimes years - from regulators getting approval for (premium) increases they either wanted or needed.
Consequently, faced with the difficultly of adjusting rates to cover losses and assess risk, many insurers simply stopped offering insurance in certain high-risk locations.
While recent reform in California allows insurers to use that same risk pricing mechanism, but this is cold comfort for many people whose insurance policies were had already been dropped and not renewed.