Fire could bring rise in insurance premiums;

Published on


San Jose Mercury News (California)

The catastrophic fires in Southern California could result in increased homeowners insurance premiums statewide, some consumer advocates fear.

The insurance industry so far faces an estimated $350 million to $500 million in claims from the out-of-control brush fires that have seared 800 square miles and razed more than 1,500 homes as of Tuesday.

If the losses come to $350 million, that would make the current fires the nation’s fifth-worst fire disaster ever for insurers. At $500 million, as one Merrill Lynch analyst projected Monday, that would place it second-worst after the 1991 Oakland hills fire.

And while insurance industry officials say a single tragic event should not translate into higher insurance premiums, some consumer advocates are nonetheless bracing for insurance to get scarcer and more expensive statewide.

The reason: Insurers have already asked for premium increases to offset rising losses from other homeowner claim costs like mold, rising construction prices and past underpricing problems. So many don’t have the cushion to absorb the fire losses they have had in the past, experts say.

”There is no doubt the insurance companies are right now considering the rate hikes they will want to impose not just on fire victims but statewide,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights.

The consumer groups say they expect some insurers especially hard hit by the Southern California fires to stop offering insurance for a while. Others probably will appeal to the state insurance commissioner, saying their losses from fires and other events necessitate a rate increase.

State Farm, which provides insurance to 22 percent of the state’s homeowners, already has alerted its agents not to issue new policies, or amend existing ones, for homeowners in the fire zone. State Farm had only recently resumed writing new homeowners policies in California, after declaring a loss-related moratorium on new policies.

Even insurance experts who downplay the impact of the current fires say factors such as drier conditions in the West and a pickup in home development in wooded areas are putting added pressure on insurance rates.

”This specific event won’t cause higher rates,” said Robert Hartwig, chief economist at the Insurance Information Institute. ”But the general trend toward more frequent and more severe wildfire events in the West generally, and in California specifically, is a factor in higher homeowner rates.”

Norman Williams, deputy insurance commissioner, said state law does not permit insurers to raise premiums solely based on losses from the estimated 1,500 homes destroyed so far.
Contact Deborah Lohse at [email protected]

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