California on Thursday temporarily banned insurance companies from dropping customers in areas affected by more than a dozen recent blazes, invoking a new law for the first time as homeowners in the wildfire-plagued state say they are being pushed out of the commercial insurance market.
The order from Insurance Commissioner Ricardo Lara comes as the insurance industry struggles to adapt to a series of record-breaking hurricanes and wildfires that have cost the U.S. $500 billion to clean up over the past five years.
California’s move on Thursday will last for one year and it only covers people who live either inside or next to the perimeter of one of 16 wildfires that burned across the state in October.
The Department of Insurance estimates the moratorium will affect 800,000 policies covering millions of people in portions of Los Angeles and Riverside counties in Southern California and Sonoma County in the northern part of the state.
"People have been dropped by their insurance companies after decades," Lara said. "This needs to stop."
Lara also called on commercial insurance companies statewide to voluntarily agree to not drop homeowners’ insurance policies for the next year solely because of wildfire damage. But insurance companies say climate change leading to more intense and frequent natural disasters is making it harder for them to stay profitable.
Destructive wildfires in 2017 meant California insurers paid more than $2 for every $1 they collected in premiums. In 2017, they paid $1.70 for every $1 in premiums, according to state officials.
"Year-over-year losses that the industry has seen are not sustainable for companies or good for homeowners," said Rex Frazier, president of the Personal Insurance Federation of California.
Seven of the 10 most destructive wildfires in California history have happened in the last five years, including 2018′s Camp Fire, which destroyed roughly 19,000 buildings and killed 85 people in and around the Northern California town of Paradise. That blaze alone generated more than $12 billion in insurance claims, according to the Department of Insurance.
Since 2015, state officials say insurance companies have declined to renew nearly 350,000 policies in areas at high risk for wildfires. That data does not include information on how many people were able to find coverage elsewhere or at what price.
One of those homeowners is Sean Coffey, who said he and his wife have struggled to maintain fire insurance on their home in Oakland.
"The pattern repeated itself almost every year since we bought our house. We would have (coverage) for 10 months. In the fall, we would get a notice we are being dropped," he said.
Coffey now buys fire insurance from the California Fair Access to Insurance Requirements Plan, an insurance pool mandated by state law that is required to sell policies to people who can’t buy them through no fault of their own. He must purchase a second policy to cover risks other than fire.
Lara has the authority to order the moratorium under a bill he authored while in the state Senate last year that was signed into law by former Gov. Jerry Brown. The law took effect in January, and this is the first time regulators have used it.
While state officials rush to assist homeowners, a new report from California Auditor Elaine Howle said the state did not do enough to protect non-English speaking, elderly and other vulnerable residents during three of the state’s most devastating fires in recent years.
The audit covered Butte County, site of 2018′s Camp fire, plus the 2017 Thomas Fire that burned more than 281,000 acres in Ventura County and 2017 fires in Sonoma County that killed 24 people. The audit found none of the three counties had assessed its residents to determine who might need extra help and whether resources were available to help such people, such as transportation, during a natural disaster.
The audit also scolds the state oversight agency, the Governor’s Office of Emergency Services, for failing to assist counties in developing such plans and reviewing any plans in place.
Howle says it was impossible to determine whether lives could have been saved "if the counties had planned differently or more fully implemented the best practices”her office recommends in the report." But she noted that "inadequate plans and insufficient planning are proven contributors to failure."