2 dead, Palisades and Eaton fires spread across 22,000 acres at 0% containment

This week’s wildfires come at a crisis point in the homeowners insurance market, where companies, citing the growing risks posed by climate change, have dropped policies and refused to write new ones.

Last spring, State Farm announced it was canceling 72,000 policies in California, including 1,600 for homes located in Pacific Palisades.

“We must now take steps to reduce our overall exposure to be more in line with the capital available to cover such exposure, as most insurers in California have already done,” explained State Farm CEO Denise Hardin in a letter to California Insurance Commissioner Ricardo Lara, adding, “We have been reluctant to take this step, recognizing how difficult it will be for affected policyholders, in addition to our independent contractor agents, who are small business owners and employers in their local California communities.”

That has left homeowners flocking to Fair Plan, the state’s insurer of last resort. As a result, Fair Plan’s financial exposure has skyrocketed.

“As of September 2024 (current fiscal year-end), the FAIR Plan’s total exposure is $458 billion, reflecting a 61.3% increase since September 2023 (first fiscal year-end),” The Fair Plan says on its website.

If the losses from the current wildfires are higher than what Fair Plan can pay, it will legally be able to seek rate increases from all other insured Californians.

“In California, just like in Florida, ordinary homeowners who have auto insurance, life insurance, will be on the hook for the failures of insurance in that state,” Susan Crawford, a senior fellow at the Carnegie Endowment for International Peace and a former science adviser to President Obama , previously told Yahoo News.

If it fails to balance the books, she added, “the likelihood is that the state will then turn to the federal government for a bailout.”