James Borow, a resident of the Palisades in Los Angeles, faced a devastating situation when his home caught fire. Just months prior, his insurer, State Farm, declined to renew his fire insurance policy. This predicament highlights a growing crisis in California where obtaining homeowner's insurance is becoming increasingly challenging. Over 450,000 homeowners turned to the state's Fair Plan in 2024, a significant increase from 2020, as traditional insurers pulled back from high-risk areas due to climate change and natural disasters.
The Fair Plan, established 50 years ago to serve as a last resort for those unable to secure coverage elsewhere, now stands on shaky ground. With only $377 million available to pay claims, the program faces potential insolvency with just one large disaster. State Farm previously dominated the market in Pacific Palisades with a 70% share but has since reduced its presence amid rising risks. Farmers Insurance, another major player, denied about 50% of claims according to recent reports.
Borow's ordeal intensified when he discovered his power was out during the fire. Following a friend's suggestion, he used his Tesla's cameras to remotely check on his property. Despite these efforts, his home suffered significant damage. The insurance landscape in California has changed dramatically with new regulations allowing companies to consider climate change impacts when setting prices. Such changes are expected to further drive up insurance costs in a state already burdened by earthquakes and wildfires.
Average homeowners insurance premiums have risen by more than 30% from 2020 to 2023. The Fair Plan only covers basic property damage up to $3 million, which limits its efficacy for homeowners like Borow. After being denied renewal by State Farm, Borow learned that securing coverage through the Fair Plan required removing 10 trees around his house. When he managed to find alternative coverage, his premium increased by a staggering 400%.
“There’s just a ton of unknowns. And so every question you have on the phone, the representatives are like, I honestly don’t know. I’m trying to find out the answer. So no one knows what the hell is going on.”
Such sentiments echo the confusion and frustration felt by many homeowners navigating this complex insurance environment. The Los Angeles County Insurance Commissioner, Ricardo Lara, has intervened by using moratorium power to prevent insurers from canceling or not renewing policies for wildfire victims in affected areas over the next year. This temporary relief provides some assurance but does not solve the underlying issues.
Victoria Roach, president of the Fair Plan, acknowledged the precarious position of the program.
“There’s no other way to say it, because we don’t have the money on hand [to pay all the claims] and we have a lot of exposure.”
Efforts to address this crisis involve government intervention and regulation adjustments. However, solutions remain elusive and costly.
“Since the Fair Plan is run by the government, I’m sure they’ll try to craft the remedy,” she said. “But unfortunately, that cost is going to be borne by taxpayers, either statewide or federally.”
Michael Coffey, an industry expert, emphasized the financial implications for residents.
“If people thought it was expensive now to live in California, I think they should understand that it’s priced based upon the risks,” he explained. “And California has a lot of insurance risk between earthquakes and wildfires, so you’re gonna have to pay a lot more.”
He also pointed out that expecting government intervention to fully resolve these issues might be unrealistic.
“That’s not something the government can be in the business of,” Coffey added.
For Borow and many others in similar situations, the path forward remains uncertain.
“Hopefully, four years from now, we will have a house again. I would say that’s the best-case scenario,” Borow remarked.