(Photo
by
ROBYN
BECK/AFP
via
Getty
Images)
I
live
not
too
far
away
from
the
Eaton
fire
which,
as
of
Tuesday
night,
is
35%
contained.
When
the
fire
started
last
week
due
to
high
winds,
the
surrounding
area
(which
includes
where
I
live)
had
its
power
shut
off
for
up
to
48
hours.
Not
only
that,
the
ash
from
the
fire
was
visible
in
the
air
and
turned
the
streets
into
ashtrays.
The
air
quality
was
so
bad
that
many
residents
voluntarily
evacuated
to
other
cities.
Eventually,
the
multiple
fires
in
Los
Angeles
County
will
be
contained.
But
the
damage
has
been
done,
and
the
current
estimated
cost
of
$250
billion
is
likely
to
rise.
Many
would
expect
that
insurance
would
cover
the
losses.
But
some
insurance
companies
have
either
dropped
their
fire
insurance
coverage
in
California
or
stopped
accepting
new
applications.
This
means
that
some
homeowners
had
to
turn
to
the
state’s
last-resort
insurance
coverage,
which
is
more
expensive
and
provides
less
coverage.
Others
had
no
insurance,
which
means
they
will
be
out
of
luck,
which
is
particularly
painful
for
those
who
owned
multimillion-dollar
houses.
But
the
majority
who
have
insurance
will
file
claims
with
their
insurers.
Given
the
size
of
the
damages
and
recent
efforts
by
insurance
companies
to
stop
accepting
new
clients
in
California,
it
may
make
people
wonder
how
they
will
handle
the
large
number
of
claims.
California
has
been
undergoing
an
insurance
crisis
for
the
past
few
years.
Since
2022,
several
major
insurance
companies,
including
State
Farm,
Allstate,
and
Farmers,
have
stopped
or
limited
new
fire
insurance
applications
in
California,
particularly
in
fire-prone
areas.
They
cite
various
reasons,
including
climate
change,
rising
labor
and
material
costs
as
a
result
of
inflation,
and
the
payouts
made
due
to
the
2017
and
2018
wildfires.
Also,
California
has
strict
laws
which
limit
how
much
insurance
companies
can
charge
for
premiums.
Proposition
103
requires
insurance
companies
to
obtain
approval
before
implementing
a
premium
rate
increase.
While
this
was
designed
to
protect
consumers
from
arbitrary
rate
increases
and
has
kept
premiums
low,
this
has
also
resulted
in
stricter
underwriting
requirements,
and
the
termination
of
new
applications
mentioned
earlier.
Furthermore,
Senate
Bill
824
prohibits
insurance
companies
from
canceling
insurance
policies
for
up
to
one
year
after
a
state
of
emergency
has
been
declared.
Indeed,
Insurance
Commissioner
Ricardo
Lara
used
this
to
declare
a
moratorium
on
cancellations
as
a
result
of
the
recent
wildfires.
But
in
2023,
in
an
effort
to
bring
insurance
companies
back,
the
California
Department
of
Insurance
implemented
a
major
regulatory
overhaul.
This
would
allow
insurance
companies
to
use
wildfire
catastrophe
modeling
to
set
rates
and
allow
them
to
pass
on
some
of
the
costs
of
reinsurance
to
customers.
This
generally
means
substantially
higher
premiums
in
exchange
for
accepting
new
insurance
applications
and
continuing
existing
coverage.
It’s
hard
to
be
an
insurance
company
in
California.
Rate
increases
must
be
approved
by
the
insurance
commissioner.
Since
the
commissioner
is
directly
elected
by
the
voters,
a
huge,
arbitrary
rate
increase
could
result
in
the
commissioner
being
unelectable
in
the
future,
or
—
worse
—
being
recalled.
If
insurance
companies
can’t
bring
in
the
enough
premium
revenue
to
pay
out
claims
and
maintain
operations,
why
bother
operating?
Some
may
ask,
why
doesn’t
the
state
become
an
insurer?
It
could
expand
its
current
FAIR
program
to
cover
more
people
and
make
it
affordable.
Since
the
state
may
have
less
of
a
profit
motive
than
the
private
sector,
wouldn’t
they
be
trusted
to
pay
claims
fairly
and
quickly?
While
that
sounds
nice,
it
hasn’t
worked
out
that
way.
Not
only
is
the
state’s
FAIR
program
a
“last
resort”
policy,
the
insurance
commissioner
is
trying
to
bring
private
insurers
back
to
the
table.
For
reasons
only
the
commissioner
and
legislators
know,
the
state
does
not
want
to
get
too
deep
in
insurance.
Maybe
it
is
too
much
work.
Maybe
taxpayers
and
voters
in
modest
and
less
disaster-prone
areas
would
be
angry
to
see
their
tax
bills
go
up
so
that
their
celebrity
and
business-titan
neighbors
in
the
Pacific
Palisades
can
get
their
seven-
or
eight-figure
casualty
claims
paid.
And
then
there
is
the
matter
of
addressing
the
insurance
companies’
grievances
or,
as
some
of
them
have
done,
they
will
simply
stop
taking
new
customers
and
slowly
exit
the
California
market.
Premiums
will
have
to
increase
to
account
for
inflation
and
to
pay
laborers
fairly,
but
a
system
should
be
set
up
to
increase
premiums
gradually
so
customers
will
not
suffer
sticker
shock.
But
there
is
the
matter
of
climate
change,
which
only
Mother
Nature
can
fully
control.
It
is
also
a
controversial
topic
with
its
fair
share
of
skeptics.
But
at
least
insurance
companies
acknowledge
its
existence
and
its
impact
on
the
environment
and
its
customers.
That
can
be
a
common-ground
starting
point
for
discussing
how
all
stakeholders
can
do
their
part
to
improve
everyone’s
financial
bottom
line.
The
recent
California
fires
have
unfortunately
displaced
a
lot
of
people
from
all
tax
brackets.
In
the
near
future,
we
will
see
how
insurance
companies
treat
their
customers
who
were
impacted.
It
is
a
complicated
business
but
in
light
of
a
recent
tragedy,
doing
the
right
thing
can
greatly
improve
the
companies’
public
images
and
make
customers
feel
slightly
better
about
paying
a
higher
premium.
Steven
Chung
is
a
tax
attorney
in
Los
Angeles,
California.
He
helps
people
with
basic
tax
planning
and
resolve
tax
disputes.
He
is
also
sympathetic
to
people
with
large
student
loans.
He
can
be
reached
via
email
at
[email protected].
Or
you
can
connect
with
him
on
Twitter
(@stevenchung)
and
connect
with
him
on LinkedIn.