Exclusive: CEO of California’s third-largest home insurer discusses consequences of L.A. fires

The ongoing Los Angeles wildfires are the pinnacle in a series of bad blazes that have plunged the state’s insurance market into a state of deep crisis.

But the CEO and president of the third-largest home insurance company in the state believes that California, and its wildfires, are still insurable. 

“It’s hard to think about the answer to that being no,” Mike Zukerman told the Chronicle on Friday afternoon.

• Insurance Impacts: Brentwood, Encino saw huge State Farm nonrenewals before fires
• L.A. fires fallout: California FAIR Plan could be on the hook for up to $24 billion in L.A. fire losses
• More fire coverage: Was Palisades Fire started by rekindling of a blaze from New Year’s Day?

Zukerman’s company, CSAA, is headquartered in Walnut Creek and covers about 6% of the California home insurance market, concentrated in Northern California. Southern California is mostly covered through the state’s other AAA-affiliated insurer, Auto Club Enterprises Insurance Group. 

Still, CSAA has a relatively small number of customers who have been impacted by the fire, and the company has been doing wellness checks to make sure those customers are safe and know that their insurance can cover evacuation costs, Zukerman said.

Speaking Friday afternoon, with the Palisades and Eaton fires far from containment, Zukerman acknowledged it’s impossible to say exactly how the insurance industry as a whole might react to the fires once they’re over. 

Analysts at JPMorgan and Wells Fargo have estimated the insured losses could be $20 billion on the low end, which would make it the most expensive wildfire in terms of insured losses in U.S. history.

But even the prospect of the FAIR Plan, the state-created insurer of last resort, running out of money — a situation that would lead to charges, also called assessments, for all licensed insurers in the state — did not faze Zukerman. 

“When we pay claims, whether they’re FAIR Plan assessments, or whether they’re to our customers directly, that’s why we exist. So we’re happy to do it,” he said. “It’s our business.”

The question moving forward is how much more expensive California insurance will get and whether more carriers might cut back on their business in the state as additional costly wildfires break out. 

Still, California is not completely powerless to stop fires, Zukerman said.

He pointed to how Cal Fire has contained numerous blazes in the past year before they’ve been able to consume thousands of homes. Zukerman also believes in investing in wildfire mitigation measures to reduce the chance that homes will ignite in a fire. His company offers guaranteed renewals to customers who achieve a Wildfire Prepared Home certification from the Insurance Institute for Business and Home Safety, which mandates home hardening measures. (There are about 1,000 such homes in the entire state, according to IBHS.)

Over the past few years, many insurance companies have cited the risk of costly wildfires as a reason to stop writing new policies, nonrenew customers or even leave the state altogether. CSAA continues to write new policies in the state and renew the vast majority of existing ones. In regulatory filings, the company said it did not renew about 5,500 policies, 1.2% of its total policies in the state, due to wildfire risk in 2024.

But that isn’t a sign that wildfires aren’t insurable, Zukerman said — it’s a sign that insurance companies need to be allowed to charge the prices that match the increased risk in order to insure. 

New insurance reforms implemented shortly before the fire should help, Zukerman said. Starting this year, the California Department of Insurance is allowing insurance companies to use wildfire catastrophe models to inform prices, and they’ll also be able to pass on some of what they pay for reinsurance — insurance for insurance companies — to their customers. 

These reforms are a recognition that climate change is increasing risk, and insurance companies need to be able to charge prices and purchase reinsurance to cover that risk, Zukerman said. 

Still he believes more work will be needed — including speeding up the rate at which the Department of Insurance approves rate filings. Insurance companies have complained that reviews, which can take months up to a year, delay their ability to adapt to rising risk and inflation. But consumer advocates say a thorough review is vital to ensuring consumers aren’t being overcharged.

Just how much insurance prices will go up has yet to be seen — and other experts worry that it could exacerbate California’s housing affordability problem. Earlier this year, CSAA raised rates by an average of 6.9% for homeowners. Others, including Allstate and State Farm, have raised rates by double-digits.

Another question California will need to answer going forward is whether California should keep building new housing in the wildland-urban interface, where forest and grassland wildfires can quickly spread to homes. (The answer, Zukerman believes, should be no.) It’s one of many issues the state will encounter in its struggle to make sure insurance is both affordable and available.

But, Zukerman said, insurance availability is a problem California will have to find a way to solve.

“I don’t think there’s an alternative for us as a society and as an industry and as a people,” he said.“Not being able to insure homes in California against these kinds of risks will completely upend the state.”

Reach Megan Fan Munce: [email protected]