SACRAMENTO, Calif. — In a neighborhood in northwest Altadena, Louise Hamlin and Chris Wilson experienced the life-altering impact of the recent Eaton wildfire that destroyed their homes, previously situated side by side in a community characterized by its historic charm. Hamlin, a single mother of a teenage boy, expressed her fondness for her 1,500-square-foot house, which she purchased a decade ago for its unique character and history.
Now, however, the scene where their picturesque English-style cottages once stood is reduced to ashes and debris, altering the landscape of their beloved neighborhood forever. Since losing their homes, both Hamlin and Wilson have been navigating the complicated aftermath involving bureaucracy, emotional struggles, and business dealings as they aim to rebuild their lives.
Yet their experiences illustrate a stark contrast in outcomes and recovery paths, shedding light on an emerging national home insurance crisis. While Hamlin’s insurance has compensated her nearly a million dollars and she searches for contractors for repairs, Wilson is facing daunting choices involving loans, potential lawsuits, and the possibility of relocating his family out of the state altogether.
“It transforms the entire direction of your life,” stated Wilson, 44, who purchased his home five years ago, anticipating a promising future with his wife who is expecting their first child in just six months.
Hamlin was covered by Mercury Insurance, but Wilson was shifted to California’s FAIR Plan after SafeCo declined to renew his policy last May. The FAIR Plan exists to provide insurance to homeowners unable to secure private coverage, although it offers only the most minimal protections.
As natural disasters like wildfires become more prevalent largely due to climate change, many homeowners struggle to find affordable private insurance. This situation is particularly concerning in California, where several major insurers have ceased issuing new policies or have refused to renew ones already in place.
To counteract this trend, California officials have initiated new regulations aimed at encouraging insurance companies to operate within the state, hoping to assist homeowners in moving off the FAIR Plan lessens.
The FAIR Plan was intended as a temporary option, but during the period between 2020 and 2024, the policies increased by more than double, hitting close to 452,000 by last year. For Hamlin and Wilson, the different experiences underscore the potential pitfalls of the current insurance system. Wilson’s premiums related to fire coverage were nearly 60% higher than Hamlin’s, yet he was left with less than half the coverage she had.
“This is why many refer to it as ‘The Unfair Plan,’” explained Amy Bach, the executive director of a consumer advocacy group.
While SafeCo’s parent company, Liberty Mutual, refrained from commenting on individual cases, it did acknowledge the difficult decisions being made within California’s insurance landscape. Mercury Insurance, asked to comment, did not provide a response.
According to Janet Ruiz, a representative from the Insurance Information Institute, California is fortunate to have the FAIR Plan in place, as it guarantees coverage for all. She warned that the ramifications could be even more devastating if homeowners had no insurance at all.
California’s Insurance Commissioner, Ricardo Lara, mentioned the ongoing efforts to ensure all claims are addressed and reiterated the necessity of helping homeowners transition out of the FAIR Plan into more comprehensive coverage options.
In light of the destruction wrought by the Eaton and nearby Palisades fires, which have been labeled some of the most catastrophic in California’s history, the FAIR Plan has expanded its staff to manage the surge in demand and has established funding to address all covered claims. Current state data indicates that over 31,000 wildfire-related claims have been filed, with approximately 4,400 originating from the FAIR Plan.
Hamlin, for instance, had a comprehensive home insurance policy with an annual premium of $1,264 at the time of the fire, and she is eligible for up to $1.5 million for rebuilding, which includes additional funds for living expenses while displaced. In contrast, Wilson’s FAIR Plan costs him $2,000 but limits his total payout to $686,000, of which $100,000 is also earmarked for temporary living expenses.
Adding to his financial burden, Wilson was compelled to acquire “wrap-around insurance” at an extra annual cost of $1,500 to cover problems not addressed by the FAIR Plan, such as burst pipes, although this additional policy does not include fire damage.
Hamlin has expressed a high level of satisfaction with Mercury Insurance, which promptly provided her with financial assistance and guided her in securing housing and contractor estimates soon after the disaster. “Being able to rest at night and wake up to manage the various challenges has been crucial,” she remarked.
Conversely, Wilson has faced considerable difficulties attempting to communicate with representatives from the FAIR Plan. The initial weeks post-fire were especially frustrating due to lack of communication—incorrect contact information and non-functional phone numbers furthered his distress.
“I often feel like I’m making a mistake,” he confessed.
After inquiries were made for further clarification, an Insurance Department spokesperson mentioned that a representative would reach out to him directly.
Reflecting on his decisions, Wilson acknowledged feeling regretful about the perceived safety of his former neighborhood, where he had chosen to buy a house, unaware of the risks associated with wildfires. Knowledge of the area’s fire risks didn’t escape Hamlin either. She was taken aback to discover that her previous insurer, State Farm, would not cover her in Altadena, leading her to choose Mercury, thinking it was the most cost-effective option at the time.
“I could have easily been dropped just like Chris. Any of us are susceptible to this. It ultimately comes down to luck,” Hamlin reflected, visibly surprised by the disparity with Wilson’s situation, noting that her risk factors were comparable.
Stephen Collier, who teaches urban planning at UC Berkeley, remarked that the arbitrary nature of who gets dropped from insurance coverage results from complex risk evaluation models employed by insurers, who aim to manage their exposure to wildfire threats effectively.
Wilson recounted that SafeCo had requested an inspection of his property before deciding to not renew his policy. Feeling desperate, Wilson attempted to negotiate by pledging to mitigate risks by clearing brush and trimming trees around his home, but ultimately found no resolution when seeking alternative insurance options.
He accepted his situation with the FAIR Plan, hoping it would be a temporary fix while believing he would eventually revert to a more conventional insurance plan.
However, an added complication arose: Wilson learned he could not obtain comprehensive replacement cost coverage through the FAIR Plan due to the age of his roof, resulting in his receiving “actual cash value” coverage, which significantly limits payouts based on depreciation.
“This situation could result in hundreds of thousands of dollars in losses, that’s incredibly distressing,” Bach detailed.
Due to increasing fire risks, a significant number of top insurance companies have either paused or limited new business in California through 2023. Recent state regulations have provided insurers more flexibility to raise premiums in exchange for policies in high-risk zones, allowing them to account for climate change factors in their assessments.
Nonetheless, experts argue these measures are merely short-term fixes. Dave Jones, California’s former insurance commissioner, pointed to Florida’s attempts to adapt to the insurance landscape, which, despite complying with insurers’ demands, has seen little improvement in the system.
“We are heading toward an uninsurable future in the U.S. if we fail to address the fundamental issue, which is climate change,” Jones asserted.
Unless significant governmental efforts are enacted to alleviate the financial burden of mitigating risks, homeowners in California will continue to face inequitable situations—some underinsured like Wilson may have to absorb losses, while others will grapple with heightened premiums.
State Farm, the largest insurer in California, recently called for an emergency rate increase of 22% on homeowner policies set to take effect in May, after managing nearly 8,700 claims and disbursing over $1 billion related to recent fires.
“There is a tremendous amount of risk present, and the pressing question remains: who will bear this burden?” Collier posed.
With the prospect of needing loans to rebuild looming ever closer, Wilson is contemplating legal action against Southern California Edison, claiming that the utility’s equipment sparked the fire, hoping for compensation through settlements.
However, with a new baby on the way, he struggles with the uncertainty of remaining on the FAIR Plan, contemplating leaving California entirely if access to private insurance continues to elude him. “I dread the thought of potentially losing everything again. Being bound to an insurance policy that fails to provide adequate coverage means living without a safety net,” Wilson said solemnly.
