California faces insurance crisis as homeowners lose coverage amid extreme weather

Amna Nawaz:

Before thousands of people in Los Angeles lost their homes in the recent deadly wildfires, many of them had lost their insurance.

William Brangham recently spent time in the region to better understand the state's insurance crisis, as costs rise dramatically and coverage shrinks.

As William reports, there is no easy fix, especially in a world dealing with the long-term impacts of climate change.

William Brangham:

So your place was right here?

Peggy Holter, California Resident:

Right here on the corner.

William Brangham:

This is all that's left of Peggy Holter's home of 47 years. Her townhouse, tucked in the hills of the Pacific Palisades, is now unrecognizable.

Peggy Holter:

It's really hard on my son because he was born in this house and went to school, lived his whole life. He said: "These were the stairs where I waited outside after school for you to come and pick me up."

William Brangham:

In a matter of hours last month, the Palisades Fire consumed her whole neighborhood. It left just a few small reminders of the past, like this tea set she was given as a child.

For now, this retired journalist is staying with her son.

Peggy Holter:

I just don't know.

And that's as somebody who's always known what I was going to do and where I was going to be and all that stuff all my life. It just seems like there's a blank in my future.

William Brangham:

Your life savings was in this property.

Peggy Holter:

Yes, exactly.

William Brangham:

And you're not going to get any of that, nearly all of that back?

Peggy Holter:

No.

William Brangham:

Holter says that's because her insurance company, State Farm, dropped her policy last year. They cited the condition of her roof, something only her homeowners association could address.

It was part of a massive insurance retreat from this area. In 2023, State Farm, which is California's largest insurer, said it wouldn't write any new policies in the state. Then, last year, it declined to renew about 30,000 existing policies here, including over 1,600 in the Pacific Palisades.

The company said the rising cost of rebuilding and the risk of extreme weather was too great. But even for those who did have insurance, like Holter's neighbors, Pam Nye and Chuck Foster, the fires have been devastating.

As a home, as a place, as a refuge, what was it like?

Chuck Foster, California Resident:

A place where you felt loved, a place where you felt comfortable. It's just a little piece of heaven.

William Brangham:

Since their home and neighborhood burned, Nye and Foster have bounced from hotel to hotel. Before the fires, they were paying Farmers Insurance about $5,000 a year for coverage, which they say included fire protection. So, after they lost everything, they went to meet with Farmers in person, hoping to speed up their claim.

Pam Nye, California Resident:

They asked us a lot of questions. And then, at one point, they said, you really have no coverage. You have flood insurance. I looked at her and I said, that can't be right.

William Brangham:

Farmers didn't respond to "News Hour"'s request for comment. But Foster and Nye have been calling their insurer almost daily, looking for clarity while reflecting on all they have lost.

Pam Nye:

I couldn't believe in my wildest dreams that would ever happen to us. I always thought that, despite the fact that we were living in the mountains and living in a forest, that we would be safe.

William Brangham:

Imagine you're looking for a place to live. A neighborhood like this looks pretty appealing, beautiful houses up in the hills, surrounded by woods. I mean, who wouldn't want to live here?

But if you are an insurance company, this neighborhood looks very, very different. A place like this with houses surrounded by forests is a potential disaster in the making. And that's exactly what happened here. And this is why insurance companies have been leaving this area in droves.

Amy Bach, Executive Director, United Policyholders:

California has been in the grip of an insurance crisis for about seven years, before these fires hit.

William Brangham:

Amy Bach is executive director of United Policyholders. They're a California-based organization that helps people deal with insurance companies.

Amy Bach:

Consumers were getting dropped regularly from insurers that had been ensuring them for decades. People were having a really hard time replacing their coverage. Competition had slowed to a virtual standstill in a lot of zip codes. People were increasingly having to turn to either a brand name they'd never heard of or the state-supported insurer of last resort.

William Brangham:

That insurer of last resort is called the California FAIR Plan. And as the private market shrunk, the FAIR Plan exploded, more than doubling the number of policies in the last few years.

Does the FAIR Plan have enough money in reserve to cover the cost of these wildfires?

Ricardo Lara, California Insurance Commissioner:

The FAIR Plan will have enough money and will remain solvent.

William Brangham:

Ricardo Lara is California's insurance commissioner. Last year, to move people off the FAIR Plan and bring private insurers back, Lara's office pushed through a series of reforms, including allowing companies to consider future impacts of climate change when setting rates and letting insurers pass along the cost of insuring themselves, what's known as reinsurance, to homeowners.

Ricardo Lara:

If we're going to ever get to affordable rates, we have to get to tackle the availability issue. Insurers have to come back to California and expand in order to bring down the cost, and that is what the reforms do.

William Brangham:

Lara says his job is to strike a delicate balance.

Ricardo Lara:

You have to make sure you have a solvent and strong market and that you have the consumer protections to make sure that they can pay out those claims when people need it. My role right now for these fires is to make sure that they're paying out the claims that they owe to Southern Californians who are trying to rebuild, recover after these catastrophic fires.

If they don't do that, I'm going to go after them.

William Brangham:

In a statement to the "News Hour," State Farm said it's already paid out more than a billion dollars in fire claims and is — quote — "bringing the full-scale and force of our catastrophe response teams to help customers recover."

But, last week, the company asked Lara to approve an emergency rate hike averaging 22 percent, saying — quote — "We must appropriately match price to risk." Lara's office is now analyzing the proposal.

And he says these wildfires prove that climate change is already upending everything about the state's insurance market.

Ricardo Lara:

Here, we're talking about fire today, but there's sea level rise. There is extreme heat. There is catastrophic flooding from atmospheric rivers. Climate change has affected every aspect of our lives, and I would be lying to you if I told you that doesn't impact insurance.

William Brangham:

Back in the Palisades, Chad Comey and his family, like a lot of Californians, had already been priced out of the private insurance market. This complex was where his family lived for three generations, and they have lost everything.

The exterior was covered by the FAIR Plan, but he says any claim likely won't be enough to rebuild.

Chad Comey, California Resident:

I don't know if we will be able to keep it in the family, just the financial hardships that come with being with, one, for us not having insurance on our unit.

William Brangham:

So you guys had no insurance whatsoever for the inside?

Chad Comey:

For the inside, no insurance, no.

William Brangham:

And why is that?

Chad Comey:

My parents couldn't afford it. They're living Social Security check to Social Security check, and they — and it was never in the — it was never financially feasible for them to purchase insurance.

William Brangham:

Peggy Holter's exterior was also covered by the FAIR Plan, but, like Chad Comey, she thinks the payout will be far less than her home's actual value.

Meanwhile, State Farm has offered to renew some of the policies it dropped in the fire zone, but Holter believes she likely won't qualify.

What about the argument that the insurance companies make that it is just too dangerous to have people living in what could be and turned out to be a tinderbox, and that they can't take that risk?

Peggy Holter:

When this was built, it had everybody's approval. They chose to insure it for 47 years. I mean, what's good? They made money off people for 47 years. That's the point of insurance, isn't it, that you chip in, and, when somebody else needs it, they get it, and when you need it, you get it.

But, in this case, they're saying, we're sorry. Too bad.

William Brangham:

These wildfires could turn out to be the costliest in American history. So, for this region to rebound, the state and its insurers will have to find a way to manage the growing risks of living in a warming world.

For the "PBS News Hour," I'm William Brangham in Los Angeles.