Chubb Ltd. and American International Group Inc. (AIG), two major insurers providing coverage for homeowners in wildfire-prone areas of California, have reduced their exposure in the state over the last couple of years due to inadequate rate increases and frustration with state regulations. The decisions by these insurers are leaving affluent homeowners in these areas vulnerable and struggling to find replacement coverage.

Chubb Ltd., the largest high-end insurer in California, is significantly reducing its homeowners insurance exposure in both highly and moderately exposed areas to wildfires. Chairman and CEO Evan Greenberg blamed California's decisions, stating that the state's failure to achieve adequate pricing for the risk is the reason for Chubb's withdrawal. This move by Chubb follows previous nonrenewal initiatives impacting less than 350 locations due to extreme exposure to wildfires. "Someone else will have the pleasure of writing that business, unfortunately," Greenberg said.

Meanwhile, AIG has notified approximately 9,000 customers over the past couple of years in its Private Client Group that their home policies will not be renewed this year. AIG's decision to cease selling home policies in California through a state-regulated unit is part of its strategy to withdraw from the state's regulated market. Some policyholders may be eligible for coverage through another AIG unit, but the premiums could be three to five times higher, with less-generous coverage.

The actions by Chubb and AIG reflect a larger trend of insurers cutting back on their homeowner businesses in California due to wildfire exposure and frustrations with state regulations. Insurers are required to set home insurance rates based on historical loss experience, rather than projections of future losses derived from catastrophe modeling. Insurers argue that they need more flexibility to reflect the escalating wildfire activity linked to climate change. However, state regulators contend that insurers can obtain adequate rate increases under the existing system and express concerns about the accuracy and fairness of catastrophe modeling, particularly in relation to minority communities.  The consequences of these insurance companies' decisions are significant for homeowners in California. Many affluent homeowners with properties valued at over $10 million pay annual premiums ranging from $20,000 to over $100,000. Finding replacement coverage is becoming increasingly difficult, especially for larger and more expensive homes. The situation has prompted concerns about the lack of insurance coverage and the potential devastation faced by uninsured homeowners if their homes are destroyed by wildfires.

Similar challenges are emerging in other states facing wildfire risks. Colorado State Representative Judy Amabilehighlights the difficulty people are encountering in finding affordable home insurance. To address this issue, Amabile plans to introduce legislation to create a "last-resort" insurance plan provided by the state of Colorado. This program, similar to those in other states, would offer bare-bones coverage at high costs.

The increasing risks posed by wildfires and the overlapping of development and wildlands are contributing to the insurance challenges. As more people move into wildfire-prone areas due to factors like climate change, affordability concerns, and rural migration, the number of residents at risk of catastrophic wildfires continues to rise. This trend puts pressure on insurers and exposes more individuals to the devastating consequences of wildfires.

Recognizing the urgency of the situation, the California Department of Insurance has proposed new regulations to incentivize risk reduction on covered properties and neighborhoods. These regulations require insurance companies to provide homeowner discounts for implementing wildfire safety measures, such as upgraded roofs and windows and maintaining defensible space. While California is taking steps to address the issue, the increasing number of people living in wildfire zones and the potential losses associated with major wildfires highlight the need for comprehensive solutions to protect vulnerable communities and ensure adequate insurance coverage.

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