Imagine this for a moment: I’m a fire insurance risk expert and I’ve built computer models that can predict with impressive accuracy the likelihood of your house catching on fire. You invite me over to inspect your place, and my prognosis is unequivocally damning. I advise you that it’s not a question of whether you house will catch fire but when.
What would you do?
a) Take measures to protect your house and reduce the risk?
or
b) Go to an insurance consortium of last resort for a costly bare-bones policy and pray to God it will have the funds to make you whole if my fire warnings prove accurate?
California Gov. Gavin Newsom was faced with this scenario. I’m sure you can guess what option Gov. Hair Gel chose.
Insurance companies have known for quite some time that parts of California, including an urban area called Marin County that borders San Francisco where multimillionaire Newsom lives, would likely catch fire. I lived in Marin nearly a decade ago and I had difficulty even getting renters insurance for my modest possessions. If memory serves, the premiums were so prohibitively high I didn’t take out a policy.
Newsom lives in an affluent hamlet called Kentfield, where last November he and his family purchased a $9 million mansion fitted with outdoor sculptures, a guest house, a handful of walk-in closets, and a swimming pool and spa.
People like Hollywood mogul Tyler Perry are quick to trash “greedy” insurance companies, somehow perceiving them as charitable nonprofits who are expected to readily have the cash on hand to make every policy holder whole in the event of a misfortune. Greedy is a relative term, but it seems reasonable to guess that when insurance companies rack up big profits, it’s because their managements developed very refined predictive models that correctly assessed risk exposures to disasters.
A State Farm Insurance executive named Denise Hardin in March of last year sent this letter to California Insurance Commissioner Ricardo Lara notifying him the insurer planned to cut coverage in at-risk areas of the state to ensure the company’s financial stability. State Farm subsequently dropped coverage on 72,000 policies, roughly half of which were homes. Some 1,600 of those homes were in the fire ravaged Pacific Palisades.
Hardin signed her letter “President and Chief Executive Officer of State Farm General Insurance Company,” but her LinkedIn bio says she was a senior vice president based in suburban Phoenix. This undated news release issued by Special Olympics Arizona announcing that Hardin had joined as an executive board member said Hardin was “a Senior Vice President for State Farm Insurance (West Central Area Market), growing with the company since joining the team in 1989.”
Hardin’s LinkedIn page says she retired, which is unfortunate for State Farm policy holders because Hardin seemed awfully good at her job, though other insurance companies appear to have their Denise Hardin equivalents as well. Among the insurance companies that curbed their exposures to California were Allstate, Farmers, and USAA.
Unlike Amazon, General Motors, and Apple, insurance companies can’t immediately adjust their pricing based on shifting circumstances. In California, and possibly in all states, insurance companies are regulated and need the approval of state insurance commissioners to raise their premiums.
The public hates insurance companies and it’s always good politics to limit their rate increases, which California regulators have done for years. As well, California regulators have ordered so-called “moratoriums” where insurance companies aren’t allowed to cancel policies they believed had become too risky.
California’s insurance commissioner Ricardo Lara the other day issued a one-year moratorium on policy nonrenewals and cancellations in areas affected by devastating wildfires in and around Los Angeles.
“I am using my moratorium powers to prevent insurance companies from canceling or non-renewing policies in wildfire-impacted areas, so people don’t face the added stress of finding new insurance during this horrific event,” Lara said in a statement Thursday.
Lowest property rates
In California, consumer and activist groups can file challenges to insurance company rate increases, a practice that allegedly has been quite lucrative for an organization called Consumer Watchdog, which sponsored Proposition 103, a ballot measure voters passed in 1988 to rein in insurance rates. Proposition 103 provided that the insurance industry fund the costs of consumer group price challenges or interventions.
Consumer Watchdog claims its interventions since saved insurance customers $5.5 billion by arguing against excessive rate hikes during the Insurance Department’s reviews.
The American Property Casualty Insurance Association (APCA) has a less charitable view of Consumer Watchdog. APCA launched a website and ads last fall painting Consumer Watchdog as a “publicity-seeking, dark money front that only looks out for its own interests and that of its secret funders.”
Steve Maviglio, a consultant working for insurance companies, obtained public records that revealed Consumer Watchdog got 96 percent of the fees the Insurance Department paid to intervenors in 2023. Consumer Watchdog received more than $21 million for filing rate challenges since 1988, APCA claimed.
The APCA also reported that Consumer Watchdog in 2021 paid its founder, public interest lawyer Harvey Rosenfield, $450,000 in consulting fees.
Californians pay some of the lowest property insurance rates in the country, Camille von Kaenel, Politico’s California environment reporter, reported last May. Given that more than a quarter of California’s residents—roughly 11.2 million people—live in fire-prone regions, common sense dictates that Californians should be paying the among the nation’s highest property insurance rates.
While it’s understandable the insurance industry has little time for Consumer Watchdog, another consumer group appears less than enamored with the Consumer Watchdog’s efforts.
“It’s great Consumer Watchdog can take claim for saving consumers millions, but look where we are right now: Insurers are saying it’s not viable,” Amy Bach, the executive director of United Policyholders, whose nonprofit advocates for consumers but has only rarely intervened in rate reviews, told Politico’s von Kaenel last May. “The pain has to be distributed equally in a situation like this, and I think Consumer Watchdog is going to probably have to intervene in fewer proceedings.”
Gov. Newsom can’t plead ignorance that major insurers felt the looming risk of catastrophic fires was too great for them to profitably insure given the policy rate increase restrictions state regulators imposed on the industry.
The Newsom administration late last May introduced a legislative proposal designed to keep the Insurance Department’s review of insurers’ rate requests to a stricter timeline — which some consumer advocates warned would limit their ability to intervene. The administration’s goal was to stabilize the spiraling property insurance market, in part, by speeding up the state’s decisions about rate hikes.
“I don’t think we have that much time,” Newsom said while introducing the insurance proposal during his budget presentation. “We’ve got to move this.”
Under political pressure
Newsom’s intervention on insurance matters was unusual, von Kaenel reported. Newsom was under considerable political pressure to stem the stampede of property insurers who were exiting California, forcing tens of thousands of home and business owners to utilize the Fair Access to Insurance Requirements (FAIR) Plan, the property insurer of last resort.
According to van Kaenel, Newsom’s home is insured under the FAIR Plan, which was created in 1968 and is administered by insurance companies under the commissioner’s oversight. FAIR Plan policies typically cost thousands of dollars more a year than traditional insurance policies and only cover damage from fire, smoke, and lightning. To get supplemental coverage for damages, liability, and other elements included with traditional property insurance, homeowners must buy a supplemental policy.
With private insurers fleeing California, more homeowners were forced to turn to the FAIR plan, causing its liabilities to soar to $458 billion, as of September of last year. FAIR Plan President Victoria Roach revealed to the San Francisco Chronicle last August the agency only had about $385 million to pay out in claims.
If the FAIR Plan can’t cover its liabilities, all licensed insurers in the state, also called admitted insurers, are required to financially back the FAIR Plan with an assessment, and insurers can pass some of their assessment costs to all insured California homeowners, causing untold increases in their insurance premiums regardless of whether they live in a high-risk fire area.
Ominous warning
“It doesn’t take a huge fire anymore for there to be the first assessment on insurance companies,” Rex Frazier, president of the Personal Insurance Federation of California, an industry group, ominously told the Chronicle just five months ago.
JPMorgan Chase last week estimated the insured damages from Los Angeles’s wildfires could top $20 billion in what’s almost certain to become the costliest wildfire eruptions in US history.
With insurance companies pounding the drums that fire risk was too great for them to write policies at current rates, common sense dictated that California and Los Angeles officials should have significantly increased fire-fighting budgets and taken other significant fire-risk mitigation measures. Instead, Los Angeles mayor Karen Bass cut the LAFD’s budget by nearly $18 million and moved to close 16 fire stations.
LAFD chief Kristin Crowley warned Bass a week before the latest wildfires broke out that she didn’t have enough resources for a major calamity. Compounding the disaster was a reservoir supplying water to the Palisades that was out of commission.
Bloomberg reported a surviving home in the Pacific Palisades was built last summer. Although the home’s architect, Greg Chasen, credited luck for his client’s good fortune, the structure notably incorporated several fire-resilient design strategies, including sparse Mediterranean desert style landscaping; the sides of the house lack eaves or overhangs that can trap embers; and the roof is metal.
“All of that is best practice for cutting a fire,” Chasen told Bloomberg.
Why weren’t Chasen’s design strategies mandated for all new homes years ago?
When Los Angeles’s fires are contained, the national media will lose interest, and California’s and Los Angeles’s political leaders will have the cover to return to their merrily incompetent ways. As I’ve repeatedly railed, the Los Angeles Times is an ailing newspaper run by far left wing and Jew hating ideologues in a city with a substantial Jewish population.
Owner Patrick Soon-Shiong finally seems to have some awareness of the radical candidates his publication has endorsed.
“We’ll accept some blame,” Soon-Shiong said in an interview. “At the LA Times, we endorsed Karen Bass. I think, right now, upfront, that’s a mistake, and we admit that.”
Soon-Shiong doesn’t appear to read his own newspaper. The editor of the Times’s op-ed letters section on Saturday posted a column advising residents to bite their tongues and withhold making judgments about their city’s fires.
“This come come (sic) as a surprise from a guy paid to edit and write commentary, but it needs to be said right now: As entire neighborhoods in and around Los Angeles are wiped out by fire — and as people experience the grief and abject uncertainty that come from losing everything in an instant — maybe resist the urge to have an opinion about it,” Paul Thornton said in a column posted Saturday.
“I say this in the face of what appears to be a politically motivated, bad-faith effort to blame the destruction on the alleged incompetence of L.A.’s Democratic leaders.”
Alleged incompetence?