California Insurance Companies Pass Fire Costs to Consumers

California’s insurance companies are passing along the costs of the deadly Los Angeles fires to consumers, raising premiums, adding surcharges, and forcing them to subsidize the losses of the California FAIR plan.

The Palisades Fire and Eaton Fire of January 7 were among the costliest natural disasters in American history. Many residents believe they were preventable, at least in part — a sentiment reinforced by the federal government’s conclusion that the Palisades Fire began with arson, and by the efforts of Southern California Edison to pay residents compensation rather than face a lawsuit over faulty power lines that sparked the fire.

In both fires, local authorities were woefully underprepared, and many residents feel that the damage could have been mitigated if water resources had been properly maintained and had firefighters been in position.

Now, insurance companies are passing along the costs of that alleged negligence by public authorities. In addition to higher rates charged by State Farm, the largest insurer in the area, to account for higher risk, customers face surcharges from insurance companies seeking to cover their losses. Moreover, the state’s insurer of last resort, the California FAIR plan, is also being allowed to charge customers of other insurers — which subsidize the plan — a total of some $1 billion in additional surcharges to cover the system’s losses.

The Los Angeles Times reported Wednesday:

Multiple insurers, including State Farm General, the largest in California, have received approval from the Department of Insurance to charge their customers for a portion of a $1-billion assessment they were hit with due to the financial problems of the state’s insurer of last resort.

Surcharges that have been approved for some large insurers so far total more than $150 million, with the average surcharge for a standard homeowner’s policy (HO-3) around $50, depending on the carrier. The charge can be more or less according to the size of the premium and is split into monthly payments that can be spread over two years.

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The FAIR Plan’s members were assessed by their pro-rata share of the state’s insurance market, with State Farm General experiencing the largest assessment at more than $165 million. The vast majority was due to residential losses and it is seeking to recoup $81.5 million from those policyholders.

The higher rates and surcharges were approved by California Insurance Commissioner Ricardo Lara, who is facing mounting criticism over his frequent travel and apparent close ties to insurance companies. He is also being sued, according to the Times, by a group called Consumer Watchdog, which says he is bailing out the insurance industry illegally.