By Allan Lengel
Washington Post Staff Writer
Friday, October 26, 2007
As the wildfires that ravaged Southern California for five days lost momentum yesterday, representatives of the insurance industry said the estimated $1 billion in fire damage would have little if any impact on homeowners' rates in California or the rest of the nation.
"It's well within the range of losses we expect to see in California every few years," said economist Robert Hartwig, president of the Insurance Information Institute. "That means the rate in this area is already reflected with the risk associated with wildfires."
After Hurricane Katrina and the Florida hurricanes in 2004 and 2005, insurance premiums in the Gulf area and parts of Florida doubled over three years, according to institute records. When 2006 turned out to be relatively hurricane-free, the higher premiums contributed to record insurance-industry profits.
That history led Californians and industry observers to express concern that insurers might raise rates or make it tougher to get policies in high-risk areas susceptible to hurricanes, floods and wildfires.
"The insurance companies have always taken advantage of crises like this to increase premiums," said Les Brown, a Los Angeles lawyer who has sued insurance companies on behalf of policyholders. "I would imagine they will try to raise some, particularly in areas like Southern California."
Donald Light, a senior analyst with Celent, a Boston firm that advises financial service companies, said the industry might try to raise premiums for those in high-risk areas or offer more limited coverage in areas even beyond California such as the Gulf or the East Coast.
But industry representatives said yesterday that the damage from the California fires paled in comparison to the $41.1 billion chalked up to Katrina and would have little impact on rates.
They noted that in 2003, when fires caused more than $2 billion in damage in the San Diego area, rates did not spike.
Jason Kimbrough, a spokesman for the California insurance commissioner, concurred: "There was no spike."
In fact, Kimbrough said, several companies have moved to lower their rates this year for competitive reasons. Only one major insurer, Allstate, the nation's second-largest casualty home insurer, has asked for an increase -- 12 percent -- and that request was made before the fires.
At the time, Allstate announced that it would no longer take new customers because of earthquakes and fire. But Kimbrough said that "other insurers have told the commissioner they're happy to step in and take up the policies" that Allstate doesn't want.
At Qualcomm Stadium in San Diego, some Allstate policyholders who had been evacuated from their homes were waiting in line yesterday for checks from the company for their living expenses. In California, insurance companies generally pay for lodging for up to two weeks for a mandated evacuation.
James Barlow, 45, an evacuee from Ramona, Calif., said he would "not be surprised if because of the hurricane and fires that rates go up." But Jerry Frude, of Muth Valley, said he was confident that wouldn't happen. "Absolutely not," he said.
Jonathan Freed, a national spokesman for State Farm, the biggest home insurer in California, said he was not surprised that residents would worry about rate hikes.
"It's a very common and understandable question," he said. "The answer is no. No one event will cause a spike in rates, and people in the rest of the country don't have to worry about the rates in California. The rate we charge to costumers is based on the aggregate risk in the state. No one event is going to skew that."
Staff writer Sonya Geis contributed to this report from California.