Calif. Wildfires Burn Insurance Rates
LIANE HANSEN, host:
The largest wildfire in the history of Los Angeles County continues to burn today. The fire in the Angeles National Forest, which officials said is the result of arson, has destroyed more than 60 homes and taken the lives of two firefighters. Officials say it could be as long as two weeks before the fire is brought under control.
Wildfires are becoming almost a yearly occurrence in California, which has been struck by drought for three years. That's strained the resources of the state's insurance industry and led some insurance companies to seek rate hikes from state regulators. We're joined now by the California Insurance Commissioner Steve Poizner. He's on the phone from his office in Sacramento. Welcome to the program, sir.
Mr. STEVE POIZNER (California Insurance Commissioner): Thank you.
HANSEN: How much of an effect have the wildfires had on insurance rates?
Mr. POIZNER: Well, not very much so far. I've been insurance commissioner here in California for about two-and-a-half years. It's an elected position. And overall, homeowners' insurance rates have gone down $700 million since 2007. Now, there are some rates that are starting to move the other direction now. But overall, it looks like things are just flattening out.
The way rate-setting works is that these insurance companies take into consideration the likelihood of catastrophes like wildfires and so it's built into the rate structure. The only thing that would affect rates would be wildfires causing damage that go beyond the expectations.
But so far, even though these wildfires have just been terrible, and that any loss of any homes is just a tragedy for these homeowners, there's only been about 100 homes that have been lost in the last few months. Thank goodness. The firefighters here are doing a tremendous job. So, I really don't expect much impact on rates yet.
HANSEN: And I think maybe the operative word may be yet, because, I mean, large wildfires are breaking much more often than in the past. Do you think there might be a preemptive rise in rates as insurers anticipate more fire claims?
Mr. POIZNER: Well, the way it works is that they need my permission, my sign-off for changing rates. The rates are set, you know, looking at multi-year trends. Overall, that's how insurance companies operate. They collect premiums year after year after year, anticipating that certain years are going to be worse than others. So far, my rate analysts and my financial analysts, we've come to the conclusion that there really hasn't been any unexpected damage and that's the key.
HANSEN: Is it difficult for homeowners who live in heavily wooded areas like the Angeles National Forest or in rural communities to get insurance because of the fire risk?
Mr. POIZNER: Some areas it's tougher than others, that's for sure. But there are about 200 insurance companies offering homeowners insurance in California. But if you are turned down three times or more, then by law, you can go into the high-risk fire insurance pool. And there's currently about 15,000 homeowners that obtain insurance from the FAIR Plan, which is the high-risk pool that's operated on a break-even basis by the insurance industry.
HANSEN: And the FAIR Plan, it stands for Fair Access to Insurance Requirements and it offers coverage, as you said, to homeowners who can't otherwise get insurance, especially in those wildfire areas. But, I mean, California's is in tough financial shape right now. Can it - the state continue to afford that plan?
Mr. POIZNER: Well, yes. It's been in existence since about the 1960s. The plan is designed to break even. If the plan needs more money, then it will assess the other private insurance companies. It doesn't cost the state of California anything. I oversee its operation as the insurance commissioner, but it has substantial reserves and it operates pretty effectively so far.
And fortunately, between the FAIR Plan, which only offers, you know, 15,000 policies, combined with the private sector, which offers close to 20 million homeowners insurance policies, anyone in the state of California can and will get homeowners insurance here.
HANSEN: Steve Poizner is California Insurance Commissioner. He spoke to us from his office in Sacramento. Thank you.
Mr. POIZNER: Thank you very much.
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