Lawsuits Allege Insurer Collusion Restricts Wildfire Coverage in California

Two lawsuits filed in Los Angeles accuse major home insurers of colluding to limit coverage in wildfire-prone areas in California, effectively pushing homeowners toward the state's FAIR Plan, a high-cost, limited coverage option.

These lawsuits allege violations of California's antitrust and unfair competition laws amid significant insurer exits from the wildfire insurance market. The FAIR Plan, designed as a last-resort insurer, has seen its policyholder base surge to over 560,000 since 2020 and faces enormous losses estimated at $4 billion from recent wildfires. Insurance professionals caution that these legal actions may misunderstand the complex risk and economic dynamics of wildfire insurance.

Experts emphasize the financial impossibility for insurers to absorb ongoing wildfire losses without sustainable risk management strategies. Key industry voices advocate for increased focus on wildfire prevention and mitigation measures, such as home hardening and creating defensible spaces, alongside government involvement in wildfire response and prevention. The persistent challenge is the nature of wildfire risk, which often leads to total loss, making it an inherently difficult risk to insure compared to other natural disasters.

Industry stakeholders believe that litigation will not adequately address the underlying issues in the wildfire insurance market, paralleling challenges seen during the COVID-19 pandemic where courts and legislatures were unable to mandate unfunded payouts. The consensus among brokers is a pivot towards resilience through enhanced mitigation efforts represents a more effective path forward for both homeowners and insurers in managing wildfire risk.