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California institutes insurance moratoriums

California insurance commissioner Ricardo Lara has instituted a one-year moratorium (officially listed as SB 824) that bans carriers from dropping the policies of homeowners living in areas struck by wildfires in 2019. This will provide some relief for about 800,000 homeowners who live in the areas around 16 major wildfires in California this year, including the Kincade Fire in Sonoma County. The moratorium will last until December 5, 2020.

In addition, Lara has called for a voluntary moratorium by carriers not to drop California homeowners in areas outside the moratorium. The rationale for the voluntary and legal moratoriums is to provide some protection to homeowners who have seen their premiums double in triple — this year will give them a chance to shop for a new policy. Still, the chances are that they will pay more if they can find a policy.

Insurance industry reels

Many have complained that the dropped policies and increased premiums have depressed the housing markets in rural areas. But in light of paying out $24 billion in damage claims in 2017 and 2018 (with more to come in 2019 and beyond), the insurance industry is stuck between a rock and a hard place. Some have not survived — Merced Property & Casualty Co. paid out $64 million in the first month after the Camp Fire, forcing the 102-year-old carrier out of business because of the remaining potential losses.

There are also more significant issues with international reinsurers telling California carriers they are over-exposed. Increasingly volatile conditions here and other areas deeply affected by climate change have prompted them to raise their rates — California laws mandate that the rates stay lower than other high-risk states like Louisiana and Florida.

This will likely lead to changes in the industry. One example is the California FAIR Plan, which is an industry-funded plan for homeowners who cannot get regular plans. However, critics complain that the coverage is bare-bones, and the rates are high.

Showdown to come

Consumer advocates feel that homeowners need to be protected from predatory policies that do not serve the homeowners’ needs or fit their budgets. However, insurance companies may have no option, particularly if they want to stay in this market or even remain in business.