By Jim Christie
SAN FRANCISCO, Oct 29 (Reuters) - Even before California's wildfires have been extinguished, insurers and activists are squaring off over the prospect of higher homeowner premiums in the disaster-prone state, analysts said on Wednesday.
As flames race across Southern California, they are setting the stage for a rush of home insurance claims of at least $500 million, said Robert Hartwig, chief economist of the Insurance Information Institute, a New York-based trade group.
"This is likely to become the second most expensive wildfire in U.S. history," Hartwig said.
Candysse Miller, executive director of Insurance Information Network of California trade group, agreed that the losses would be large and said insurers were prepared to pay.
"We know this is a massive, even probably a fire of fairly historic proportions," she said, adding that as of Wednesday morning, she had counted almost 3,100 home and auto claims.
Against the backdrop of those losses, observers expect a contentious debate ahead among insurers, activists and regulators over whether the industry should be allowed to raise homeowner rates or limit coverage to limit their losses.
"In California, insurance is highly politicized," said Bill Sirola, a spokesman for State Farm General Insurance Co.
ALARM BELLS RINGING
Hartwig said that population growth in fire-prone areas of California made more expensive home insurance a certainty.
"There will have to be a reassessment of the risk associated with these areas," Hartwig said. "This, simply put, is man on a collision course with nature," he said.
But critics of California's insurance industry were unmoved by the large payouts it potentially faces.
Insurers had been seeking to boost already high home insurance premiums in California before the fires and they could now use the disaster to justify higher premiums or to further limit coverage, one prominent critic said.
"The premiums that homeowners have been paying over the years are meant to fund the effects of a disaster like these fires," said Doug Heller, an advocate with the Santa Monica, California-based Foundation for Taxpayer and Consumer Rights. "However, you can be certain that the insurance industry behind closed doors is preparing a strategy for higher premiums."
"We know the companies' response will be to raise rates or further tighten the market," Heller said. "There may need to be some legislation (on underwriting policies) to protect consumers from the volatility of this market."
Heller dismissed the idea that insurers would exit the large and lucrative California market if more regulations were imposed. "They're never going to leave California. That's bullying tactics," he said.
However, some insurers have shown they are willing to pull back from a market they say is excessively regulated.
State Farm stopped writing new homeowner policies in the state in May 2002 and has only recently resumed.
Seattle-based SAFECO Corp. in July imposed a short moratorium on selling homeowners insurance in California, pending state approval of a proposed 20 percent rate increase.
SAFECO's move came two days after the state's Department of Insurance imposed regulations restricting insurers from selecting customers based on their past claims.
As the wrangling continues, homeowners worried by the fires in Southern California are starting to tap the FAIR plan, a state-mandated insurance industry pool for basic property insurance.
A FAIR spokesman said applications for fire insurance on Tuesday had doubled from a week earlier.