The Wall Street Journal reports that a little-known change in California's insurance regulations last year means that the enormous property losses caused by the current Los Angeles fires may end up being paid by all California property owners - not just those directly affected.
The new policy affects the backstop for California’s Fair Plan, the state’s insurer of last resort, which sells fire-damage policies to homeowners who can’t get coverage elsewhere.
The worry is that the Fair Plan lacks the resources to pay for the quickly escalating cost of the fires, which have destroyed tens of thousands of structures.
The rules change means insurance companies can bill their customers if they are forced to bail out the plan, which has an estimated $200 million in cash and $2.5 billion in reinsurance, according to data it reported last year.
That is likely not enough to cover the Fair Plan’s share of the losses from the fires, forecast at up to $6 billion by analysts at Evercore ISI.
. . .
Analysts at Morningstar DBRS now forecast insured losses of up to $30 billion—the highest for any fire in the world in recent times ... the spiraling cost could financially overwhelm the Fair Plan, the decades-old, government-created insurance safety net.
Like similar insurance safety nets in more than 30 other states, including disaster-prone places such as Florida, the Fair Plan wasn’t set up as a typical insurer. It operates with little cash in the bank, as a way of keeping rates—while higher than private insurers’ premiums—within reach of policyholders. Regulated insurers agree to bail out the plan, if needed, as a price of doing business in the state.
The Fair Plan is required to take all-comers, which means its customers are heavily concentrated in fire-prone areas.
. . .
If the Fair Plan breaches its financial resources, the state can call on commercial home insurers to pay the rest of the claims, by imposing what’s called an assessment on the companies.
The charge on each company would be roughly proportionate to its share of the home-insurance market ... companies can add to their customers’ bills 50% of the first $1 billion of an assessment, and 100% of any amounts over that, subject to [the California insurance commissioner's] agreement.
. . .
Consumer advocates are up in arms about the prospect of a potential charge of hundreds or even thousands of dollars being added to home-insurance bills.
“Homeowners across the state shouldn’t pay because insurance companies dumped homeowners on the Fair Plan,” said Carmen Balber, the Los Angeles-based executive director of Consumer Watchdog.
There's much more at the link. If you own and/or insure property in California, it's a must-read article.
Think about it like this. You own a house in, say, Redding, a city in northern California, about 550 miles from Los Angeles as the crow flies. You're paying your regular homeowner's insurance on your property, presumably a manageable amount, because you're not in a high-risk zone. Suddenly your insurer demands that you pay double that insurance premium for 2025, because that's "your share" of its bailout costs for California's Fair Plan insurance scheme, which has been drained by fire losses in Los Angeles - losses with which you had nothing to do. You object? So what? California's rules, regulations and laws make it legal to rob Peter to pay Paul - and in this case, you're Peter. You say you can't afford the bill, and don't have the money? Then your insurers will sue you, and may end up taking your house and selling it out from under you to get the money the State of California says you owe them. Doesn't that give you a warm, fuzzy feeling?
I am so very, very glad that I don't live in the socialist hellhole known as California . . .
Peter
9 comments:
The 2023 assessment charge change to the FAIR plan was designed as a typical political Ponzi scheme - Sacramento never thought there would be a call on the system that exposed the lie. The plan won't work, not the least of reasons being it would gut Democrat control of the state. Please don't forget that renters are subject to the same economic downdraft here. Biden would have bailed them out, if Trump doesn't there's a serious, serious budget reckoning coming to California.
And in about 2 weeks, there's a ballot initiative to ban the practice, which like limiting property taxes, passes in about 2 minutes, 70/30.
Then the state realizes they charge the @-holes who live in fire-prone areas a 500% premium assessment, like they should have been doing since the get-go, and the problem goes away, either by raising enough money, and/or limiting the number of @-holes living in fireprone areas.
Next problem.
It's also a great way to Cloward-Piven the entire socialist Fair Plan, by forcing everyone into that pool, and bankrupting it once and for all.
Kind of like importing 50M illegals, and making them eligible for Social Security and Medicare they never paid into.
"The problem with all socialism is that eventually, you run out of other people's money." - Margaret Thatcher
Waiting for Aesop to make an appearance and blame this on carpetbaggers from New Yuk et al.
Perhaps we’ll get some monetary relief from Ukraine. Oh, wait …
I like this idea, if it stops at the California border.
It brings the consequences of having large states and oppressive government to everybody within a polity.
If someone in Redding doesn't want to pay for a Hollywood fire, either move the border or move your feet.
Or remove the rules and rulers.
"insurance companies dumped homeowners on the Fair Plan,” said Carmen Balber"
Riiiight.
the socialist college professor in town who insists that socialism has never been tried will not comment on this. this is true socialism.
Predatory oligarchs are going to make a killing with Democratic strategy of allowing fires to burn out of control and force the sale of real estate. The insurance market is nothing if you have enough $.
The party will agitate for bailouts - spending controlled by them, too.
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