The broken home insurance market — in California and beyond

Many LA homeowners were dropped by their insurance companies a year before the fires. Is there a better way to make the insurance industry more affordable and sustainable?

Carmen Balber, Consumer Watchdog executive director.

Dave Jones, director of the Climate Risk Initiative at UC Berkeley's Center for Law, Energy, and the Environment. Former California Insurance Commissioner (2011-2018).

Michael Rothschild, journalist.

Mark Friedlander, director of corporate communications at the Insurance Information Institute.

Seth Nagel, talent manager.

Part I

MEGHNA CHAKRABARTI: Michael Rothschild's house no longer exists. It was consumed by the Los Angeles wildfires that are expected to be costliest natural disasters in U.S. history

MICHAEL ROTHSCHILD: About 6:30, I was driving home with our kids, and we saw the glow of the fire, which we then found had started in the Eaton Canyon area. Even that is a couple miles away from us. We didn't think we were in any real danger.

I would say that about 9 or 9:30, we could then start to see the flames starting to creep across the mountains north of us. So if you walk outside on what used to be our front porch and if you turn left, the mountains are right there. So probably about 10:00 from where we would usually look out, we could start to see the flames crawling across the mountain.

So we decided we haven't gotten any kind of evacuation warning. We're just going to be safe. We're just going to put some stuff in our cars. We grabbed documents. We grabbed sort of priceless things off our walls. We tried to pack up some clothing, medication. We had dinner. You know, the kids are sort of panicking and we're trying to reassure them that we're okay.

We went to bed maybe 11:30 or midnight.

3:25 a.m., our phones start blaring that we need to evacuate right now. Not a warning. It's go time by that point. Our power is out. Our house is freezing cold. Our kids are panicking. We're panicking. We're trying to grab some stuff. I threw clothes on. We got out of the house in about 10 minutes and it's pitch black.

There's no streetlights. Everything is smoke and ash. Cars are going north and south. People are just getting out, and we drove about two and a half miles south to my mother in law's house, who lives in Pasadena. Her power was out. We went there. We tried to lie down. And then at about 6:30 a.m., we get an evacuation warning for that area of Pasadena, which we misinterpret as evacuation order.

We then leave. Again, we go to a church in Pasadena, which was another couple miles south, and we stayed there for most of Wednesday, and that's where we found out from neighbors that our house had burned down.

It hits you as this kind of nauseous feeling. And then, of course, we have to tell our kids, and they're crying, and we're upset, and it's very much this sort of, like, everything's just turned around on itself.

And you just don't have any time to process it, because you don't know what to do next. You don't know where you're going to go next. Everyone is trying to figure out, can they go back? Where do they go? What do we do? We've now seen the footprint of our house. We've seen the rubble. We've seen the red tag on the coral tree outside of it.

So we know 100% that the house is gone, but we still have not been up there. It's not really safe right now. There's still active burning. There's obvious toxic ash in the air. And one of the things that we kind of realize very quickly is that we have to call our homeowner's insurance company.

You know, we're very lucky in that we have insurance. We're going to be okay going forward, but it's just a lot to go through. And I know a lot of other people have had some real horror stories about companies just not being prepared for this, not getting calls back, but we've been very fortunate.

CHAKRABARTI: As Michael says, he was lucky. He still had homeowner's insurance at the time of the fire. Michael is insured with a private carrier and says he's having a good experience working with the company so far, even after losing his home. He guesses that may result from his family's decision not to file a claim, but pay out of pocket for some roof damage last year.

But Michael's experience isn't shared by all Los Angeles residents. Many of them, in fact, have been abandoned by their insurers.

SETH NAGEL: Over the last year, two years, most of our neighbors have been dropped by their insurance agencies.

CHAKRABARTI: That's Seth Nagel and like his neighbors and thousands of others in Southern California, he too, was dropped by his insurance company, well before LA's current wildfire disaster began. We'll hear more from Seth later in the hour. All told, the LA fires caused up to an estimated $275 billion in damage. And insurance companies may be on the hook for $20 to $45 billion in claims. Now, that number could have been even higher if insurers hadn't refused to renew policies or stop writing new ones altogether.

So here's why. According to an August 2024 report by Bankrate, Allstate was one of the first insurance companies to quietly make major changes in its California business. They paused writing new home and condo policies in California back in 2022.

A November 2022 Allstate earnings release states, quote, growth is being reduced in states and in lines of business that are underperforming. At this time, we will no longer write new homeowners and condominium business in California, end quote.

Then on May 27th, 2023, State Farm announced that it would stop accepting new applications for quote "all business and personal lines of property and casualty insurance in California." End quote. The company cited, quote, historic increases in construction costs, rapidly growing catastrophe exposure and a challenging reinsurance market.

As reasons for pulling out of the state, then came Farmers, which announced it too would stop writing new policies in California, citing the exact same reasons as State Farm. By 2024, five other companies, AmGUARD, Falls Lake, The Hartford, Tokio Marine Insurance Company and American National also stopped writing new home insurance policies in California.

All told, these companies represented 35% of California's home insurance market. So that mass evacuation of insurance companies is not just happening in California. Just last month, at the annual Western Governors Association conference, lawmakers from Nevada, Colorado, and other states called the rapid exit of insurance companies from their regions, quote, "the most challenging home insurance market we've ever experienced," end quote.

So today, we're going to take a close look at America's fragile home insurance system. Is there a better, more affordable, and sustainable way to keep homeowners insured? And we're going to start with Carmen Balber. She's the executive director of Consumer Watchdog, a non profit dedicated to protecting consumer and taxpayer interests.

And she joins us from Los Angeles. Carmen, welcome to On Point. Thank you, Meghna.

CARMEN BALBER: Thanks for having me.

CHAKRABARTI: So, first of all, since you're in LA, let me, if you don't mind, let me just check in on you. I mean, how have you been during this disaster, your home, your neighbors?

BALBER: Well, I really appreciate that. I'm actually lucky to have been really out of the line of fire.

But like everyone in Los Angeles, I have close friends who lost a home, many, many others who are really severely impacted by this. So I was lucky enough to have just a few days of bad air, but so many others are in much worse, much worse boat than I.

CHAKRABARTI: Right. And then as the focus of this hour is, not only are many of them dealing with the total loss of, you know, their homes and everything that those homes represented, but being underwater in terms of trying to get things rebuilt without insurance.

So can you tell me a little bit about what you've been hearing and seeing from the consumer perspective in the aftermath of these fires? And people's insurance situations?

BALBER: Well, what we've been hearing from the public really runs the gamut of the insurance problems that consumers will be facing in the wake of these fires.

It goes everything from people who were dropped by their insurer and could not afford to get another policy, so they are completely uninsured. To folks who are underinsured, perhaps were dropped by a carrier. Move to another carrier, but had to accept higher deductibles, less coverage. Because that coverage was more expensive. And people who have regular insurance, but now we're facing difficulty getting their initial claims paid.

And, of course, the big elephant in the room is our insurer of last resort, the FAIR plan, which is where folks go if they cannot get coverage with any private insurance company. And many, many more people have moved to California's FAIR plan over the last several years. Those people are also worried about getting their claims paid in full.

CHAKRABARTI: And a little bit later in the show, we're going to talk about what the fragility of the state-based FAIR plan is. We're going to do that in detail, because as you said, so many people are moving to that as the insurer of last resort. This insurance, I don't know if I should call it a collapse, but this extreme fragility of the insurance market in California has been going on for some time, though.

I mean, I just outlined quickly over the past couple of years, the exit of a lot of major insurers from the state. I mean, how far back would you look to see if you could pinpoint a beginning of a significant shift in the market for consumers?

BALBER: It has really been only the last few years.

And that's, in truth, a aspect of this situation that we don't talk about a lot. As you mentioned, this is not a problem that just California is facing. It's California and Iowa and New Jersey and Louisiana, states that run the gamut as far as their climate risks, what their insurance is covering.

Many of them are facing the same problems, and I think it shines a light on the fact that the insurance industry has for decades, like the oil industry did for many, many years, gone along with blinders on. Not acknowledging climate risk and continuing to tell homeowners that they would be covered and collecting premiums from Californians, from Louisianans, et cetera.

And it is only in the last several years that the industry has begun to say on a broad basis, and certainly here in California, Oh, wow, there's this thing called climate change. Sorry, we're no longer going to cover you. And for many homeowners, it's really an abrupt switch.

From the many years they paid their premiums diligently, and expected their home insurance to be there when they needed it, to being told all of a sudden, we're sorry, you're now too risky to ensure. And that's what folks have been experiencing just in the last several years here in California.

Part II

CHAKRABARTI: Carmen, if you allow me to bring another voice in here, Dave Jones joins us now. He's the former California Insurance Commissioner. He served in that position from 2011 to the beginning of 2019 and he's currently Director of the Climate Risk Initiative at the University of California, Berkeley's Center for Law, Energy, and the Environment.

And he just wrote an op-ed in the New York Times headlined, This is Who Should Foot the Bill for the Los Angeles Fires. He joins us from Lake Tahoe. Dave Jones, welcome to On Point.

DAVE JONES: Great to be with you.

CHAKRABARTI: Okay, so before we get to the answer to the question, you say this is who should foot the bill for the LA fires. I would like both of you to help us understand in more detail how the homeowner's insurance market actually functions, right? Because a basic understanding is you pay your premiums. It goes into a big pool of money, some of which, of course, is used for the profit of the insurers that are running the business, operations, etc.

But the expectation is there's an ample pool of money for then, for claims to be paid out. Dave Jones, is that how it works?

JONES: Yes. Thanks to California's strong insurance regulation. Insurance companies are required to have very strong reserves to cover not only claims in a typical year, but to cover claims in a catastrophic year.

And so when we had catastrophic wildfires in 2017 and 2018, when I was insurance commissioner, where the carriers collectively paid out about $14 and then $12 billion dollars for each year, the companies had sufficient reserves to pay claims, with the exception of one small insurance company that sadly decided just to write insurance in Butte County where the Camp fire was.

So California is in a very different place than Florida, where after one of the more recent hurricanes, 10 insurance companies went insolvent. That's the worst thing that can happen. Because you think you have insurance, and then you don't, and then you only get cents on the dollars. And so, yes, premiums and pricing is set to allow insurance companies to cover their administrative costs, to have big reserves, and to make some profit.

And then they take the money they collect from us as premiums and invest it, and they're required to invest it in ways that are stable and prudent so the money will be there to pay claims. And they make money on those investments.

CHAKRABARTI: Well, if that's the case, though, then why do we have all these companies that have stopped writing new policies in California, right?

I mean, at the beginning, I just read from Allstate, a major national insurer who said, these lines of business are simply underperforming in places like California.

JONES: So what's been happening for the last 10 years or so, but with greater severity and acuity, as Carmen points out more recently, is that the background risk driven by climate change is getting worse.

So, even though, say, the insurance companies in California made positive underwriting returns after 2017 and 2018, where they didn't make positive underwriting returns, but in '19, '20, '21, '22, '23, '24, they made positive underwriting returns, but the background risk is growing. The possibility of an event like that in Los Angeles really wasn't a question of if, it was a question of when.

And what's driving that is our failure to transition from fossil fuels and greenhouse gas emitting industries in this country and across the globe. Which is fueling global temperature rise, which is fueling these more extreme and severe weather-related events.

Which are landing across the country. There's no get out of climate change free card in this country or anywhere else in the globe. And what insurers do when faced with these events, which are killing more of us, injuring more of us, damaging more of our homes and properties, and also causing larger insurance payouts and not just in California, but 18 states, insurance companies are raising rates and declining, reducing the amount of insurance they're writing. Is they raise price. And they reduced the amount of insurance they write.

And that's happened with, as Carmen points out, increasing severity in the last couple of years. Not just in California, but in other places across the United States.

CHAKRABARTI: So Carmen, let me turn back to you. Because even though there's considerable pain that comes along with major increases in premiums. From what Dave is describing, these are necessary now because the payouts are going to have to be larger given the, to use the language of the industry, the catastrophe exposure.

BALBER: That's absolutely true. And I don't think anyone in the country who's looking at it logically can deny that climate change has caused increased costs for everyone, from the insurance industry to local governments. And insurance premiums in California have increased to reflect that increased risk.

Such that, as Dave mentioned, the insurance industry is still profitable in California, contrary to the narrative that you may hear from the industry. That, you know, they're going bankrupt in the state, and that's their excuse for pulling out.

And I think that's really an important point to make here, that the insurance industry in California and across the country remains profitable. The insurance industry has a trillion dollars in surplus. That's the money they have set aside to pay claims nationally, that's record amounts of surplus. And in California, the home insurance line, specifically, is more profitable than they are across the country.

So insurance companies' actions are not reflecting dire financial risk. They're reflecting the calculation that if we drop, if we cherry pick only the least risky folks, we're going to make more money. And I think you said, you highlighted a really interesting word from Allstate. They didn't say, we're going broke in California.

They said California is underperforming, so we're going to reduce our new sales. Or as they did, stop new sales for now, to pump up our profits. And that's what we're seeing going on with the insurance industry. And I think we'll probably get to this a little bit later in the conversation. There's the real costs that insurance companies are facing, from increased weather disasters, to the inflation that every single American has seen in their pocketbook, in many ways.

And there's also their ulterior motive, which is getting rid of the strong insurance oversight in California that the industry has had in their sites for 30 years now.

CHAKRABARTI: Yeah. So, to that point, that strong oversight that you just mentioned. I think the insurance industry points to that oversight as one of the reasons why there is basically, let's call it an actuarial gap in between what they can collect in premiums. And again, these expected payouts due to climate driven, the increase in climate driven catastrophes.

So we spoke with Mark Friedlander, he's with the Insurance Information Institute and he really pinpointed this for us. He said that private insurers must be allowed to charge what he called actuarially sound rates, in order to continue providing coverage in California. And he asserts that the companies cannot continue to write policies that due to regulation, he says, are essentially set up for a loss.

MARK FRIEDLANDER: If they're not writing at an actuarially sound rate level, there's a good chance they're going to lose money on that policy. No business in the U.S. has an operating model to lose money. That's not a sustainable model, obviously. And this is why a couple of years ago, many of the major insurers, California, said, we're going to stop writing new policies.

We were losing too much year after year on California, because of wildfire losses and not being allowed to charge an actuarially sound rate level. We can't write any more business till this is fixed. And that forced the insurance commissioner and the Department of Insurance to take action. And that's what's happening now.

CHAKRABARTI: Dave Jones, respond to that.

JONES: So the insurers argue that if we just simply eliminate all regulation and allow rates to go up as high as the insurance companies can set them, this problem will be solved. But in fact, Florida is an example of exactly that. Florida has largely deregulated their market. All the things that the California Commissioner was asked to do, they've done in Florida and then some.

Rates are four times the national average. They've allowed reinsurance costs to be included in rates for decades. They've allowed catastrophic modeling in rates. They've set up two taxpayer funded reinsurance facilities for their direct rate of insurance. They eliminated any insurance company exposure to their FAIR plan.

I know we're going to talk about that in a little bit. Long list of things. And yet the national carriers are not writing in Florida. Farmers in California announced they were going to pause writing new insurance, but they were continuing to renew about 80%, 85% of their book of business the last couple of years. In Florida, they truly did pull out completely, not writing or renewing any auto, home or umbrella insurance.

So I don't think we're going to rate increase or deregulate our way out of this problem. We're not exactly where Florida is in California, but that's a trajectory we were going on to. And it's because we're dealing a lot with the symptoms, not the cause. Which is climate change and our failure to transition from fossil fuel emissions and other greenhouse gas emitting emissions.

And there are things the insurers can do about that, which I'm happy to talk about later in the segment.

CHAKRABARTI: Yep, sure, for sure. But let's, I want to get, I want to pin down these numbers for a second. Because the interesting thing about insurance is that while we may want to look for a national solution, there's basically 50 different regulatory regimes, right? For insurance in in this country.

So focusing on California for another second here, specifically, Dave Jones. I mean, can you just tell us, what is the most current premium cap premium rate increase, or the cap for that in California?

JONES: There is no cap.

CHAKRABARTI: There is no cap. Okay.

JONES: And this is a common talking point in the insurance industry.

There's no cap. Insurers are free to come in and apply for, if they can justify it, whatever rate they need. The department then reviews that. There's a process where consumer organizations like Carmen's get to participate, and then the department makes a decision. Now, I do think it is the case that because climate change is getting worse, and the risk of these events is getting worse.

The carriers do need more rate, and they have been getting rate increases in California, and they're going to get even more rate increases as a result of the changes that the insurance commissioner put in place last year.

But in exchange for those things that they asked for and got last year, the insurers said they would lift their paws on writing new insurance, and begin to write some insurance, even in the high wildfire risk areas. Then there's the LA event, right? Where, as you point out in your lead, the losses could be as high as $45 billion. My view is they shouldn't use LA as a pretext not to keep writing in California.

Why? Because when they ask for all those regulatory changes that are going to give them more rate faster, they had models that told them that the LA event was not a question of if, it was a question of when. And so now it's occurred. It's horrible. It's tragic. It's going to cause them big losses, but they got the changes they asked for and I believe they should be held to their commitment to keep writing in California.

CHAKRABARTI: Got it. Carmen, let me turn back to you. I just want to give another example that Mark Friedlander from the Insurance Information Institute provided. In terms of, again, what he sees as this chasm between what insurers need to charge to stay afloat and what states are allowing them to charge.

This is a particular North Carolina example, another, you know, hurricane-vulnerable state, and he pointed out that insurers in North Carolina were asking for a rate increase of over 40%. This year, because the risk has gone up so much, the state's regulator only allowed a 7.5% increase.

So, I mean, according to Friedlander, that is a basically an uncrossable gap, that no company can stay in business when states tell them, you simply cannot charge enough to cover what your expected losses are. I mean, isn't that a problem, Carmen?

BALBER: Well, that is the insurance industry's take on what's going on, but the reality is there's what insurance companies want, and there's what they actually need.

And what the regulators are doing is parsing the difference between what companies would love to profit and what they can live with. And I think, you know, I was not involved in the North Carolina rate proceeding, of course. But I know it went on for weeks. There were dozens of experts who testified.

And the regulators didn't pull a number out of a hat and say, We're just going to say it's 7%. They listened to all the evidence, and gave the company what they thought they needed to continue. And I want to just flag that the biggest uninsurance problem in North Carolina was not access to the traditional home insurance market.

Not to say that they don't have problems in that, but it was the fact that almost no one had flood insurance in the mountains in Asheville, where they thought a flood would never ever happen. And so you know, pegging the insurance industry's argument that, Oh, we just can't make the rate we need, is just the industry's take on it.

It's a question of how much they need to stay in the market, versus, you know, their ideal profit numbers.

CHAKRABARTI: Well, one more point here from Mark Friedlander, because again, he's from the Insurance Information Institute, and focusing back on Los Angeles and that number that it could cost insurers. Insurers, I should say, this is not the overall economic cost of the fires, but it could cost insurers anywhere from 20 to, excuse me, $45 billion, and Friedlander told us that it's those high costs that are, as we're discussing, causing insurers to raise premiums or pull out of certain areas.

FRIEDLANDER: It's a combination of expensive properties, very dense populations in the areas that were devastated, and replacement costs escalating, as well. We're seeing replacement costs higher than ever before. We did an analysis here at the insurance information institute that showed a 55% cumulative increase in home replacement costs over a 3-year period, 2020 through 2022.

Comparatively, that's almost 4 times the consumer price index, during the same timeframe. So that shows you how much replacement costs have escalated. Why? Supply chain disruption, more expensive construction materials, like lumber and labor shortages. So, while yes, we did see a very high proportion of what we call high net worth properties in LA, that were destroyed by the fires.

Replacement costs are more than ever before. So all catastrophes in the U.S. are costing more than they did in the past.

CHAKRABARTI: Dave Jones, respond to that.

JONES: That's right. And on top of that, we're shoving more people and businesses into harm's way, into the very areas where climate change and these events driven by it are landing with greater severity and extremity.

But the higher costs of replacement of homes and businesses and shoving more people and businesses into harm's way wouldn't matter nearly as much if we weren't having more extreme and severe weather-related events driven by climate change, driven by our failure to transition fossil fuels landing in those areas.

So, yes, actually correct, what he said there, but again, the real driver is climate change.

Part III

CHAKRABARTI: Dave, [you] were going to make another point about the overall cost increases for insurers or rebuilding homes. Go ahead.

JONES: There are only 15 states that actually regulate home insurance rates, that require those rates to be approved by the Department of Insurance before they go into force and effect.

The vast majority of states allow the home insurers to file the rates and begin to use them without any oversight. And yet, even in those other states where the insurers are free without any regulation to set the rates wherever they want. Insurers are pulling out. So this is not a problem of regulation.

I don't also think we're gonna rate or increase our way out of this problem. It's a problem fundamentally driven by climate change.

CHAKRABARTI: Okay, so I'm gonna put a pin in that, because then we're, in a few minutes, I want to ask, so then what do we do. But let me get the voice of a homeowner in here. Once again, Seth Nagel.

You heard him at the top of the show. He is a talent manager in Los Angeles, and he was dropped by his insurer, Mercury Insurance, prior to the fires. So again, I'll just emphasize this. He lost or wasn't renewed long before the LA fires occurred recently. Now, he's lucky and he's grateful for that because he did not lose his home in the fires, but his interactions with the insurance industry mirrors the experience of many who did.

NAGEL: So you get this letter and they're like, you know, cut this tree and that tree and this tree. And so then you do it and then you submit the pictures to the agency. And, you know, Mercury or whoever you're with would come back and say, okay, now you have to cut this tree in this tree and this tree. And that should suffice.

And, you know, if you do this, then we're going to write the policy for you.

CHAKRABARTI: And Seth says he fulfilled all those requests and it cost him thousands of dollars to improve his property per the insurance company's mandate, but it didn't make a difference.

NAGEL: His policy was not renewed. They've asked, you know, people to do this work with the hope that they will then have their policies renewed, though it's my understanding that they had no real intention of actually renewing them.

I talked to an insurance agent who spoke to the underwriter and the underwriter said, like, we have, I'm sure they wouldn't go on record, but they had no intention of writing these policies. I can say that I know one person within a half mile radius who was actually renewed, and they literally removed their wood deck and there's nothing surrounding their property at this point.

CHAKRABARTI: After his policy was not renewed by Mercury, Nagel was able to get on the California FAIR plan, that is the state-run insurer of last resort. And you've already heard of this today, the number of policies issued by the plan has grown by more than 40% since late 2023, and that roughly mirrors the number of people who were not renewed in California by private insurers recently.

But it's projected that the California FAIR plan will not have enough money to cover the number of policies affected by the fires. According to reporting by the industry publication insurance business, the FAIR plan has a combined exposure of approximately $4.8 billion for the various fires in Los Angeles County.

$4.8 billion. But as of January 6, of this month, the plan had $377 million available to cover claims. Additionally, Seth says rate increases have now forced him to consider dropping other kinds of homeowner's insurance that Californians need.

NAGEL: We also are now vulnerable, because we can't afford to pay for the earthquake insurance that we used to have, before we got dropped.

CHAKRABARTI: So, for Seth and many others, the home insurance industry has created what he sees as a no-win situation. He's forced to operate on the terms set by the insurance companies and required to have homeowner's insurance based on the terms of his mortgage. He says the current system leaves little power in the hands of homeowners themselves.

NAGEL: Anyone who's been bullied kind of knows what the insurance agencies are doing. They're literally being bullies.

CHAKRABARTI: That's Seth Nagel, he's a talent manager in Los Angeles.

So Carmen, let's focus on the California FAIR plan a little bit. Do you agree with the numbers that I cited before, that the FAIR plan itself is vastly underfunded to cover the policies that that people currently have with it?

BALBER: Certainly, that they're underfunded. There's a lot of question about how much money the FAIR plan actually has. There's that $377 million number, but there's a suggestion that they also have additional reserves. And then they, of course, have access to additional funds in the form of reinsurance, which is insurance for insurance companies that would pay out, along with assessments on their member insurance companies.

So there is more access to money that will, I want to flag for your listeners, ensure that FAIR plan customers get their claims paid. But there's no question they don't have enough money to pay the bills.

CHAKRABARTI: But there's access to it. Where is the money coming from, simply put?

BALBER: So this is one of the really concerning pieces of this story.

So whatever money the FAIR plan has in the bank, and whatever money they have access to in the form of reinsurance, there is also an additional assessment that the FAIR plan can charge to its member insurance companies, which is every insurance company in the state if they can't pay their bills.

And that was created because the FAIR plan was created in response to the private home insurance industry dropping homeowners. Initially, because of fires and the Watts riots in Los Angeles.

But subsequently, obviously consumers are now turning to the FAIR plan because the private insurance industry has dropped them. So the plan was structured to say, okay, insurance industry, you make money from the FAIR plan in the good times. But if they can't pay their bills, you're on the hook to make up the difference.

That has been the law in California since the FAIR plan was enacted. Part of the current insurance commissioner's concessions to the insurance industry was to say, okay, insurance industry, you no longer are on the hook for that bill. If you have a FAIR plan assessment, if the FAIR plan can't pay its bills because you dumped so many people on it, you can turn around and charge every single policyholder in the state for those assessments.

And that is not going to go over well when a $500 or $1,000 bill comes due for homeowners in Oakland, and Northern California, and San Diego have to pay because of these LA fires. Now, we don't know the extent of the losses. I, you know, am estimating those numbers, but that is not going to go over well with homeowners across the state.

CHAKRABARTI: Dave, can you explain why that decision was made?

JONES: Unfortunately, it was made because the insurers asked for it. 35 states have FAIR plans. They're exactly as Carmen described, in all those other states, except now for California, Florida, and Louisiana, the insurers are on the hook if the FAIR plan has a shortfall in funds.

And that makes sense, as Carmen explained, because it's the insurers that are deciding whether or not people are going to be forced under the FAIR plan. So states in those other states have said, look, since you're the ones making those decisions, the FAIR plan runs out of money, you're going to have to cover the losses.

Florida and Louisiana, the insurance companies asked that they be relieved of that exposure. They got it. And then last year, that happened in California. One other point I'd like to make about Seth's situation. I agree. It is completely unacceptable. That a homeowner, or a homeowner's association, or a city or town or the state of California, for that matter, are spending billions of dollars in mitigation, home hardening, defensible space, landscape scale, treatment of forests, all these things we know work.

And the insurers models that they use to decide whether they're going to write or renew insurance account for none of that. So we need the state legislature and governor to stand up to the insurance industry and pass a law that says those models need to account for mitigation. Because we know mitigation works, and even the insurers acknowledge mitigation works.

CHAKRABARTI: So here, now we're getting to, what should we do, right? Because, to both of your points, I mean my educational background is in engineering, so I see this as a system that was operating, it's like one of those stepwise functions, that nothing changes until everything changes. And, but the reason why nothing changed for a long time is to give the insurance industry credit, they are exquisitely good at risk assessment.

Right? That's like what their entire business model is based on. But the question is, what risks to account for when it comes to coming up with, as Friedlander said earlier, actuarially sound premiums. Now, Carmen, you were saying earlier that they were not accounting for climate related risks.

Are they doing that more now?

BALBER: Well, I think it's not just the risks, but the risk reductions that Dave mentions, because that's really the boat that consumers are in now. The insurance industry wants to pass on all of the costs they're identifying from climate change, directly on homeowners.

And that's what we're seeing with higher rates and non-renewals and whole parts of whole states being redlined. And we could let the insurance industry do that for the next several years, and decide where Americans can and cannot live. And find ourselves in a drastic situation where a quarter of the country can't get insurance.

That's not the answer. What we need to do is begin investing in the kind of community resilience that will make it so our communities can stay insured. And while the insurance industry is happy to pass on any costs they can imagine to consumers, they will not reflect the benefits of risk reduction in communities.

And that's what we need to change. We need to require the insurance industry to say, if you took all of the state wildfire resilience or hurricane resilience steps, then, you're guaranteed coverage. Because what you're doing is reducing risk to yourself, your community, the whole state, and ultimately saving the insurance industry money.

And unless homeowners like Seth have an incentive to do that, most of them are not going to spend the tens of thousands of dollars it might take to protect your home from fire or other disasters. And that really needs to be reflected in the calculation, or we're not going to be moving to, you know, more sustainable communities. And the insurance industry has to reflect that spending, and frankly, we think they need to be part of that spending, as well.

It should not be only on the government to do what the insurance industry is in the business of, which is protecting against risk.

CHAKRABARTI: So risk mitigation needs to become, well, a required part of the actuarial analysis that the companies do. Point, well taken, I mean, Mark Friedlander though, again, at the insurance Information Institute, he tells us that they've done an analysis that shows that for 2024, for every dollar in premiums that insurance companies took in, they paid out.

Or expected to pay out a dollar and a nickel. So 5% more in payouts than what they took in. Meaning that they'll be constantly underwater here. So, I mean, I do wonder, Dave, can both of you have really emphasized the role of climate change throughout this conversation? Which, of course, is not just a California problem.

It is not just a Florida problem. It's an everyone problem. Have the fundamentals of what it costs to insure homeowners changed so much, that has this problem become bigger than the private sector can manage?

JONES: The problem is certainly bigger, but I also think there are things the private sector can and should do to make insurance more available.

I don't know where that figure of a dollar and 5 cents comes from, but I know in California, the carriers for the last six years have been making positive underwriting returns. In addition to requiring insurers in their modeling to account for mitigation, not just in pricing, right? You don't get to the discount if they won't write you the insurance.

It has to be incorporated into their models to make decisions about writing and renewing, as Carmen and I just spoke to. But in addition to that, insurers have the right to bring lawsuits against the oil and gas companies for their contribution to the losses that the insurers have. It's called a right of subrogation, and they should bring those lawsuits.

They've done it in utility context. They did in the opioid context. They did in the big tobacco context. They ought to do it in the oil and gas context. But the science is really clear that it's those emissions that are major contributor to their losses. And then also, insurance companies in the United States have over half a trillion dollars invested in the fossil fuel industry, and they're insuring the fossil fuel industry. So why are we allowing insurance companies to invest in the very industry, the fossil fuel industry, whose emissions are making it increasingly challenging for the insurance company to write insurance in many parts of the United States. Here, too, state legislatures and governors need to stand up and say, look, you're pulling out of my state.

We're not going to let you keep investing in the very industry, the fossil fuel industry, that's driving your challenge in writing insurance. So there are things the industry can and should do.

CHAKRABARTI: But couldn't you make the same argument then to, I don't know, the U.S. Forest Service, for a century of forest management practices that have contributed to, you know, ecosystems across the West that are tinderboxes.

Couldn't you make the same claim on, you know, cities themselves and their zoning that maybe have made them less resilient to fire? There's a lot of places to point the finger here. I'm not seeing that as a fix for the industry to keep homeowners insured, Dave.

JONES: Well, in fact, the insurance companies in California claimed and got $11 billion from PG&E as a result of the 2018 Camp fire and other billions from other utilities that were causes of wildfires that caused them losses. And that helped to mitigate, to some extent, the losses that they were seeing, and helped them reduce, to some extent, the amount of rate increases they might otherwise have sought.

So I'm not saying that they should limit where they're going to seek recovery. But I am saying they're ignoring completely the oil and gas industry, and they ought to be going after that industry as well for its contribution to this problem.