0:00

CFOs and controllers, there's a better way

0:02

to manage cards, expenses, travel,

0:04

and reimbursements. You need a unified

0:06

spend platform from Brex that lets you control

0:08

all your spend in one place, automate compliance,

0:11

and close the books faster. Get started at brex.com

0:14

slash WSJ.

0:21

Over the last few years, wildfires

0:23

have been causing record levels of destruction

0:25

in parts of the country. Virginia

0:29

in particular has felt the brunt of the damage.

0:32

The fires have burned through millions of acres

0:34

of land and damaged thousands of

0:36

buildings, many of them homes.

0:40

I finally got to the house and it was just, it

0:43

was gone. Entire hillsides

0:45

engulfed in flames, forcing many people to

0:48

evacuate their homes. There were some houses

0:50

over there. This is completely

0:53

devastating. We

0:54

got to get out of here. Ashes

0:56

are coming down. Everybody says it was just

0:59

stuff, but it was all

1:01

I had.

1:04

As their homes have been destroyed, more

1:06

and more Californians have had to file insurance

1:09

claims.

1:10

And insurance companies say they've

1:12

had to pay out tens of billions of dollars

1:14

in these claims.

1:18

And now, some insurance companies

1:20

are going to stop offering new home insurance

1:23

policies in the state altogether. State

1:26

Farm is no longer accepting new applications

1:28

for homeowner's insurance in California. All

1:30

state has stopped accepting new

1:32

policies in California because

1:35

of wildfires, among other things. We

1:37

spoke to one Northern California homeowner about

1:39

his experience getting his home insured.

1:42

We're all nervous. You know,

1:44

everyone in Sonoma County is nervous. I

1:47

don't know how many companies are going to stay.

1:50

Or if they keep me, is the rate going

1:52

to skyrocket? This is

1:54

the new normal.

1:58

Welcome to The Journal, our show about the about

2:00

money, business, and power. I'm

2:02

Jessica Mendoza. It's Tuesday,

2:04

June 20th. Coming

2:12

up on the show, why Californians

2:14

are struggling to find home insurance.

2:30

Would you mind just introducing yourself and

2:32

telling us a little bit about you? Sure.

2:35

My name is Phillip Parkinson.

2:38

I live in the San Francisco

2:40

Bay Area.

2:43

Up until a few years ago, Phillip Parkinson

2:46

and his late husband Stan lived in the city

2:48

of San Francisco.

2:50

But we did not want to retire there.

2:52

We both wanted more space, and

2:54

we both wanted a yard. So

2:57

in April of 2019, they bought their

3:00

dream home in Occidental, California,

3:02

a small, rural area a few miles from

3:05

the Pacific Ocean. It

3:09

is a lovely three-bedroom,

3:11

two-bath house on

3:14

six and a half acres. It's very

3:16

quiet, very peaceful, which is what really drew

3:18

us to it.

3:21

And there's an entire area downstairs,

3:23

which we turned into an art studio for my

3:25

husband. He was

3:27

a painter, and he had always wanted his own

3:30

studio, and he never had one. So that also

3:32

drew us to the house.

3:33

That sounds really lovely. It's

3:36

beautiful. Every morning, I sit

3:38

in a chair. We have these cathedral windows,

3:41

and have my coffee, and look out at the valley,

3:44

and think how incredibly fortunate

3:46

I am to live here.

3:50

When we bought this property, we really

3:52

weren't thinking of wildfire.

3:56

But then we bought it in April of 2019,

3:58

and then in October.

4:00

we actually had to evacuate.

4:02

There was a fire, this was like Santa

4:05

Rosa fire. Also

4:07

known as the Kincaid fire, it burned through

4:09

almost 80,000 acres. So

4:12

we actually had to evacuate for a week,

4:14

which kind of freaked us out a little bit. We're

4:16

like, oh my God, where did we buy a house?

4:19

In the end, that fire didn't reach

4:22

Occidental, but Philip and Stan

4:24

saw it as a wake-up call. They

4:26

decided to get their house evaluated by a fire

4:28

safety expert and immediately

4:30

got to fireproofing. So

4:33

we were given a very long list of

4:35

things that we needed to do, and we've learned

4:37

a lot.

4:40

It's called liming trees, where they say

4:42

that makes your branches are at least six feet

4:44

off the ground so that a fire can't

4:46

leap from the ground up into the trees. So

4:50

all of the trees that are even remotely

4:52

near our home,

4:54

we limed all the trees.

4:56

We did a lot of clearing a brush.

5:00

So we just pushed everything, like we

5:02

whacked it down to the ground. We pushed everything

5:06

away from the house. We

5:08

had a new roof put on the house,

5:11

new gutters,

5:12

which we keep clean

5:15

so that things can accumulate in the gutters.

5:18

We put a strip of

5:21

gravel around most of our house

5:23

so that nothing could grow.

5:27

We had

5:27

the decks painted, which would be more resistant

5:29

to fire than heavy in raw wood.

5:31

So we did quite a bit to

5:34

try to make it as safe as we possibly could.

5:38

That's a lot of work. It

5:40

was a lot. It was very expensive,

5:43

but we felt like to protect the property

5:45

where we wanted to be our forever home,

5:48

we really

5:49

felt that was an investment we needed to make.

5:53

While Philip was doing all this work, he also

5:55

had the protection of a home insurance policy

5:57

from the company Liberty Mutual.

6:00

But

6:00

in January of last year,

6:02

I received a letter out of the blue saying

6:04

that they were not going to renew our

6:07

policy in April because

6:09

of it just said because of wire fraud danger.

6:12

And at the time

6:15

my husband was dying from cancer,

6:18

I was taking care of him at home

6:20

myself. I'm

6:22

so sorry. And I didn't, I

6:25

was so distracted and consumed

6:27

by that. I kind of put the letter down. When

6:30

I did, was able to give attention

6:32

to the letter say March,

6:34

I thought, well, I'm going to call them and tell them about all

6:36

this great work I've done. Surely if they

6:39

understand what we've done, it will make

6:41

a difference. And it didn't.

6:43

They literally told me it

6:46

doesn't matter what you've done.

6:48

You're in a certain zone.

6:51

When we asked Liberty Mutual about Philip,

6:53

the company said that it doesn't comment on individual

6:56

cases, but that it continues to cover

6:58

homes in other parts of the state.

7:01

Unlike State Farm and Allstate, both

7:03

companies have stopped selling new home

7:05

insurance policies, not just in areas

7:07

at risk of wildfires, but everywhere

7:10

in the state of California. These

7:12

are giant companies. And for them to say

7:14

they're no longer willing to offer home insurance

7:16

in any part of California, is

7:20

a big shift.

7:21

Our colleague Jean Eaglesham covers insurance.

7:24

And she says that California, the state

7:26

with the biggest population in the country, is

7:29

a huge market for insurance companies. While

7:32

the state doesn't require homeowners to have insurance,

7:34

many people have to have it as a condition of their mortgage.

7:38

Tell us about State Farm and Allstate.

7:41

How big are they as players in California? State

7:44

Farm and Allstate

7:45

are huge in California. State Farm

7:47

alone has a fifth of the

7:49

market. According to insurance brokers

7:52

that we've spoken to, they've played a

7:54

very important role in recent years

7:56

because they've been willing to

7:58

offer home insurance.

7:59

insurance policies on valuable

8:03

properties in areas at

8:05

pretty high risk of wildfire. So

8:08

one broker said to us, they're the only game in town.

8:10

If you've got a mansion in an area

8:12

that's

8:13

vulnerable to wildfire, really state

8:15

farm and all state have been the ones that the

8:17

brokers would typically go to.

8:20

So what's led to them pulling out now?

8:23

There's two things really led up to this crisis

8:25

point.

8:28

One is we're seeing these wildfires

8:31

of increasing severity

8:34

and also increasing frequency. So

8:37

we had bad wildfire years in 2017, 2018, again in 2020. And

8:43

the extent of those wildfires, the extent of the losses

8:45

for insurers, were such that it

8:47

wiped out years and years and years of profits.

8:52

Insurance companies say that payouts on claims

8:54

to California homeowners more than doubled

8:57

from 2019 to 2022.

9:01

The other

9:01

thing more immediately is since the pandemic,

9:04

we've seen this higher inflation and supply

9:07

chain issues, and that's pushed

9:09

up rebuilding

9:09

costs very significantly.

9:12

So they're facing this squeeze

9:14

from higher costs and also

9:16

the threat of higher losses from wildfires.

9:21

And those aren't the only problems.

9:25

California has very specific rules

9:27

about how much insurance companies can charge

9:29

homeowners. And insurance companies

9:32

say they've had enough.

9:37

That's next.

9:52

What sort of regulations does California have in

9:54

place when it comes to how insurance

9:56

companies set prices? So

9:58

California has a... a very either

10:01

consumer friendly or industry

10:04

unfriendly approach depending on how you look at it.

10:08

In the state,

10:08

the voters back in the

10:10

80s passed a law essentially insurers

10:13

have to get every increase in

10:15

premiums approved by the insurance

10:17

commissioner. Also,

10:19

California can make it very tough for insurance

10:22

companies to raise rates by more than 7%. If

10:25

they do want to hike rates by more than that, the

10:28

request has to go to a public hearing and

10:30

that process can take months or even years.

10:33

So insurance companies have typically kept their increases

10:36

to just below 7%. And

10:39

that has

10:40

worked in consumers favor in the sense

10:42

that it's kept premiums relatively low

10:45

and the insurance commission says they've saved billions

10:48

of dollars

10:48

for consumers.

10:52

Insurance companies say they've also had to

10:54

deal with another problem. It's

10:56

not just the amounts that the commissioner

10:59

has seen as being very tough on, it's also

11:01

the methodology the insurers are

11:03

allowed to use. They can only

11:06

base their requests on 20 years

11:08

of historic data. Basically,

11:11

California says insurance companies cannot

11:13

set premiums based on estimates of

11:15

future losses. Consumer advocates

11:18

see these predictive models as unreliable

11:20

and easily exploitable.

11:22

So insurance companies have to base their rates

11:24

on losses they've had in the past when

11:27

wildfires were less of a problem.

11:30

Other disaster-prone states like Texas

11:32

and Louisiana allow insurance companies

11:35

to consider future risk when setting

11:37

insurance premium rates.

11:42

We spoke to Rex Frazier about this.

11:44

He's the president of the Personal Insurance Federation

11:46

of California, which represents large

11:49

insurance companies in the state.

11:51

Why are we in California, a state

11:53

where so much of our politics are

11:55

defined by issues of climate change,

11:58

why are insurers being asked to project?

11:59

their future losses based upon the average

12:02

of their last 20 years. We think that

12:04

doesn't make sense because wildfire is

12:06

just taking up a much larger

12:08

role now than it did

12:10

in the past. And the

12:13

regulations, which haven't been updated in

12:15

over two decades, ought to be updated to

12:17

do that.

12:21

When Liberty Mutual told Philip Parkinson

12:23

it wasn't going to renew his policy, he

12:26

started making calls.

12:27

I called every insurance

12:29

company that my neighbors used, all

12:32

the ones that I could think of. And

12:36

as soon as I gave them my address, they

12:38

typed it in and they would come back and say, you're

12:40

in a zone where we can't write new policies.

12:45

The state of California does offer

12:47

a, quote, last resort insurance policy

12:50

for homeowners who can't get insured. It's

12:52

called the Fair Plan, but it only

12:55

offers very basic coverage for fires.

12:58

Philip considered the Fair Plan as an option,

13:01

but he found that it costs a lot more than private

13:03

insurance companies.

13:04

So kind of as a last resort

13:07

before I went with the Fair Plan is there is

13:09

a local insurance agency in

13:11

Occidental, believe it or not, this tiny little town, and

13:14

I called them to say, do you have any

13:16

ideas? Is there anything that I could do? And

13:19

they asked me if I had called AAA

13:22

and I said no, because I thought they only did

13:24

cars and they said, no, they do property as well.

13:27

I called him that day and he said,

13:30

if they're willing, if they said yes, bind

13:33

it today because tomorrow

13:34

they could say no. AAA

13:37

said yes. So Philip signed up for

13:39

the policy. He now pays a

13:42

premium that is double what he paid with Liberty

13:44

Mutual. But he says it's still considerably

13:46

cheaper than what he'd have paid for the California

13:49

Fair Plan.

13:54

So you got on AAA insurance

13:56

last year.

13:57

Did it renew this year?

13:59

So I knew it was supposed to. to renew in early April.

14:02

So I kind of spent the whole month of February because

14:04

that was my window,

14:06

just hoping that a letter was not going

14:08

to arrive and it didn't. So my,

14:10

it did renew in April, but

14:14

now I know that this is my new normal. It's

14:16

like, so right now I have coverage through April 24

14:20

and I'm gonna have to wait and

14:22

see if they renew it next year. Well, having

14:25

struggled with your home insurance

14:27

policy, do you still feel

14:29

like you made the right decision with your house? I

14:32

do.

14:33

Actually I do because this

14:35

house was a dream come true

14:37

for us. And

14:40

it

14:41

would break my heart to sell this

14:44

property. Stan loved this property

14:46

so much. He loved the garden.

14:49

He grew flowers and vegetables

14:52

and his art studio,

14:54

like I said,

14:55

I never want to sell this house. I'm

14:58

gonna do everything I can to keep it, to

15:00

protect it. I do want to

15:02

stay here.

15:04

Not having home insurance is a huge issue

15:06

if your house burns down,

15:08

but it's also an issue for people who want to sell their

15:10

homes.

15:11

It's a lot harder to find a buyer for a house that

15:13

can't get insured or can get insured,

15:16

but at a really high rate. What

15:18

would you say to insurance companies who

15:20

have pulled out or are considering pulling

15:22

out of California because of wildfire

15:24

risk? You

15:26

know, our climate is changing.

15:29

I totally understand, yes,

15:32

I'm gonna pay a higher premium here than

15:35

say a home

15:36

that's completely

15:38

urban in the middle of a concrete

15:40

jungle perhaps. But

15:43

probably the number one thing that I really

15:45

wish

15:46

could be the case

15:48

is that I do think insurance companies

15:51

should have to consider wildfire

15:53

mitigation work that you may have

15:55

done on your property.

15:57

California is now asking insurance companies

16:00

to offer discounts to people who work on

16:02

fireproofing their property. The

16:04

state says it will also hold public meetings

16:07

to discuss using wildfire predictions to set

16:09

insurance premiums. But

16:11

our colleague Jean says it's a delicate balancing

16:13

act.

16:14

Because on the one hand, they

16:17

want to keep premiums as low as possible. On

16:20

the other hand, they have to make sure they don't

16:23

over ratchet down the premiums because they

16:25

need to make sure that these companies can actually

16:27

afford to stay in California. What

16:30

are consumer advocates saying about all this? Consumer

16:33

advocates are worried. They

16:37

think there are higher premiums coming. What

16:39

they say is they think there's a degree

16:42

of the industry here

16:45

just using this as a negotiating tactic. In

16:47

particular, they think that the

16:50

industry is potentially picking

16:52

on California in a way to try and send

16:55

a message to the regulators

16:57

across the U.S. Look, if

16:59

you try and pressure

17:02

us too much, hold our premiums down too much,

17:05

we might walk out from your state the

17:07

same way that we're now treating

17:09

California. In fact,

17:11

Florida is already dealing with soaring home

17:13

insurance rates because many homes there

17:16

are in hurricane-prone areas.

17:21

Why are there

17:24

questions being raised about

17:26

how do you help people who just

17:29

can't get insurance because

17:31

a risk is just too high

17:33

for them to get any policy they can actually realistically

17:36

afford? What happens with those people

17:38

who are left effectively exposed

17:40

without insurance? I think the

17:43

concern is whether that starts

17:45

to become a problem in, say,

17:47

California or in other states that

17:49

are vulnerable to these climate

17:51

change-related

17:51

risks.

18:00

across the rest of the country. That's

18:14

all for today, Tuesday, June 20th. The

18:17

Journal is a co-production of Gimlet and The Wall

18:19

Street Journal. If you like our show,

18:21

follow us on Spotify or wherever you get your podcasts.

18:24

We're out every weekday afternoon. Thanks

18:27

for listening.

18:28

See you tomorrow.