The deadly forest fires that hit Southern California this week destroyed a significant number of homes after some leading insurance companies pulled out of offering policies in the Golden State in recent years because of the growing risks of wildfires and a challenging regulatory environment.

Several ongoing wildfires, including the Palisades Fire and Eaton Fire, have devastated communities in the Los Angeles areaincluding Pacific Palisades and Altadena. The fires have burned nearly 30,000 acres amid a Santa Ana wind event, with at least 130,000 people in the area under evacuation orders. At least five people have died in the flames and more than 1,000 buildings have been destroyed.

State Farm, California’s largest home insurance company, announced in March 2024 that it would discontinue coverage on 72,000 home and condo policies in the summer. The company cited inflation, regulatory costs and the growing risk of catastrophes for its decision and had previously stopped accepting new applications from the state.

Several other leading insurers, including All State, Farmers and USAA, have also slowed new policy applications in California in recent years as part of an effort to limit their exposure to policies that carry what they see as undue risk given what state regulators have allowed. to be collected from the insured. Similar reasons of increased risk, high repair costs and rising reinsurance premiums have been cited in these decisions.

CALIFORNIA FIRES DEVASTATE LOS ANGELES COUNTY, KILL 5 ​​AND THREATEN THOUSANDS OF HOMES

Plumes of smoke are seen as a wildfire burns in Pacific Palisades, California, on Tuesday. (David Swanson/AFP via Getty Images/Getty Images)

This week’s wildfires drew new attention to the issue of insurers no longer accepting new policies or declining to renew old policies in California communities at high wildfire risk, as leading figures in the insurance industry entertainment denounced the movements following the disaster.

James Woods, an actor who owns a house in the Southern California area burned by the Palisades fire, wrote to X that “one of the big insurance companies (sic) canceled all the policies in our neighborhood about four months ago.”

Actor Rob Schneider blasted State Farm in a post on X, writing, “Fuck you and all your (sic) fake ads! You are a load of crap for canceling Californians’ insurance policies ! I will never use State Farm insurance again!”

A State Farm spokesperson said in a statement to FOX Business, “Our number one priority right now is the safety of our customers, agents and employees affected by the fires and helping our customers in the midst of this tragedy.”

STATE FARM Cuts 72,000 California Home Insurance Policies: ‘DECISION NOT TAKEN LIGHTLY’

The spread of the Palisades Fire was mapped. (Fox News)

The state of California home insurance market has struggled in part because of regulatory limits on what companies can charge policyholders in premiums, as well as growing exposure from wildfires and other severe weather events that have pushed up payouts and strained reinsurance market.

California voters approved it Proposition 103 in 1988, which was intended to protect policyholders from unfair rate increases by requiring insurers to obtain approval from the California Department of Insurance for any increase above 7%. The law also limits rate hikes and spreads any increase over a three-year period.

CALIFORNIA FIRES EXPERIENCING STATE AND FEDERAL RULES HINDING MITIGATION EFFORTS

Firefighters battle the flames of the Palisades Fire in the Pacific Palisades neighborhood of Los Angeles on Wednesday. (Apu Gomes/Getty Images/Getty Images)

While insurers can and do receive approvals for larger increases, State Farm secured a 20 percent increase in home and auto premiums in January 2024 and subsequently requested an increase of 30% for home policies last summer, the process can be lengthy and the size of The rate hikes approved by the regulator may not be enough for insurers to continue offering policies while preserving their own financial stability.

By curbing the ability of insurers to raise rates to account for increased risk, it keeps insurance plans artificially low for consumers. This means that insurance companies are faced with a decision between keeping the excess financial exposure on their books or taking steps to limit their exposure or exiting the market.

The state of California offers what is called the FAIR Plan as an insurer of last resort for consumers who were unable to secure a plan in the private market. However, the policies are still expensive and insurers are raising concerns about the sustainability of the FAIR Plan’s growth.

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The FAIR plan’s exposure increased by $174 billion, or more than 61%, from September 2023 to September 2024, when its residential exposure reached $458 billion. The number of home policies in force under the FAIR Plan increased from 320,581 to 451,799 in this period, while they have increased by 248,902, or 123%, since September 2020.

“The FAIR Plan continues to grow in size as consumers find themselves without coverage. As a result, we’ve doubled in size in the past three years,” FAIR Plan President Victoria Roach said at a hearing in March. “As the numbers rise, our financial stability becomes more and more in doubt.”