As California\u2019s wildfires keep growing bigger, more frequent and more destructive, it has put pressure on property insurers, some of which have been declining to\u2026<\/b>
\nAs California\u2019s wildfires keep growing bigger, more frequent and more destructive, it has put pressure on property insurers, some of which have been declining to renew homeowners\u2019 policies in fire-prone areas. When the houses that burned this year are rebuilt, their owners may find that no one is writing insurance there \u2014 at least not at affordable prices.
\u201cWe\u2019re not in a crisis yet, but all of the trends are in a bad direction,\u201d said Dave Jones, who is completing his eighth and final year as California\u2019s insurance commissioner. \u201cWe\u2019re slowly marching toward a world that\u2019s uninsurable.\u201d
Here\u2019s what you need to know about California\u2019s slow-motion insurance crisis:
Who is being wiped out? Millions of Americans want to live in what experts call the wildland-urban interface \u2014 quiet, scenic realms where towns and cities end and forests, grasslands or scrublands begin. For decades, the number of people moving to such places has grown, and today about a third of all American housing stands on the wildland-urban interface. But houses close to vegetation pose complex risks \u2014 including the danger of fires.
Of California\u2019s 8 million houses, about 3 million stand on the wildland-urban interface. And of those, 1.7 million are considered highly prone to wildfire. Real estate agents warn home buyers, but they pay little attention, said Alice Hill, a research fellow at the Hoover Institution who studies climate change and other catastrophic events.
\u201cIt\u2019s a known risk, and people just hope it won\u2019t happen to them,\u201d Hill said.
What is California doing about it? To protect homeowners from unnecessary rate increases, California requires insurers to justify increases with reams of data showing that their cost of paying claims is rising. And after a catastrophic year, insurers are not allowed to raise rates right away, but must phase in the increase over 20 years.
After last year\u2019s fires, United Policyholders, an advocacy group, heard from homeowners who had received letters from their insurers stating that their coverage would end in 45 days. The group set to work with regulators and lawmakers on a legislative package that would have required insurers to seek state approval before pulling out of high-risk areas, mandated discounts to policyholders who fireproofed their homes and given regulators the power to make sure that insurers\u2019 wildfire models were sound.
The only provision that became law was a two-year moratorium barring insurers from dropping policyholders for two years after a \u201ccovered disaster,\u201d said Amy Bach, the group\u2019s executive director.
Insurers were also stepping up home inspections, she said, sometimes disqualifying houses with risks they had not cared about before.
When that happens, the owner must try to find coverage elsewhere, possibly from a \u201cnonadmitted\u201d insurer, one that does not meet the state\u2019s regulatory standards. That can be risky. If all else fails, they can get insurance from California\u2019s property insurer of last resort, the FAIR Plan.
How does that work? The FAIR Plan was set up in 1968, after riots prompted property insurers to pull out of the Watts section of Los Angeles. It has since evolved to also provide coverage for people shut out of the market because of wildfire risk.
\u201cThe FAIR Plan is designed for people who cannot find insurance \u2014 it can\u2019t just be because they dislike the rate,\u201d said Mark Sektnan, a vice president of the Property Casualty Insurers Association of America, who represents the industry in California, Hawaii and Nevada.
The FAIR Plan is operated by the industry \u2014 without taxpayer dollars \u2014 and is required to charge rates that reflect risk, so it is not some kind of bargain. And it covers only fire-related risks; a homeowner is still expected to buy coverage elsewhere for theft, liability, flooding and other perils.
The program covered 4,269 homes at extreme risk of wildfire in 2017, up from 3,861 extreme-risk homes in 2014. The numbers, though growing, remain low because the FAIR program screens applicants to be sure they cannot get insurance elsewhere. Because of the new two-year moratorium on nonrenewals, there will be a lag before victims of the current fires start to show up in the FAIR Plan\u2019s statistics.
Has a situation like this happened anywhere else? Florida had its equivalent of the Camp Fire in 1992: Hurricane Andrew, which killed 44 people and damaged more than 730,000 homes. At the time, it was the worst natural disaster in state history in terms of insured losses, causing nearly $25 billion in such damage in today\u2019s dollars.
The storm also wiped out about a dozen insurance companies, said Don Griffin, the Property Casualty Insurers Association\u2019s vice president for policy research. Florida\u2019s two biggest, State Farm and Allstate, had to borrow money from their auto-insurance affiliates to pay homeowners\u2019 claims, he said.
The big insurers mostly pulled out of the state and in the retrenchment that followed Florida set up its own homeowners\u2019 insurer, Citizens Property Insurance.
At first, it filled the gap in the market. But Citizens was not required to match its rates to its risks and it ended up underpricing the remaining insurers. At its peak, Citizens had a quarter of the homeowners\u2019 insurance market in Florida, Griffin said.
Sektnan said, \u201cIf they had a major hurricane then, there are people who would tell you it would have taken the whole state down.\u201d
Eventually, Citizens came under criticism and sold off many policies to private insurers. Today, Citizens\u2019 market share is about 5 percent and it functions more as an insurer of last resort.
Hill, the Hoover researcher, said she wondered whether the wildfires would force California to expand the FAIR Plan and even subsidize it with state money. But Florida\u2019s experience has left the industry wary of a public insurance enterprise.
So far, Sektnan said, homeowners were not clamoring to join the FAIR Plan. He thought the state\u2019s insurance market remained healthy and most people could still buy adequate coverage.
Bach, the advocacy group executive director who works with people receiving nonrenewal notices, disagreed. She said many homeowners were simply opting for cheap plans with insufficient coverage.
Is there anything else that can be done? It is worth looking at a fire-mitigation program in Colorado.
In 1989, Boulder County had the Black Tiger Fire. It was small compared with today\u2019s conflagrations \u2014 44 houses burned down \u2014 but it prompted the county to set up a program to harden its roughly 8,000 houses against fire.
The county dipped into its own budget, got federal and state grants, and consulted with insurance and real estate specialists to establish a program called Wildfire Partners, said Jim Webster, the program coordinator.
After nearly 30 years, Wildfire Partners does not take all comers. Successful applicants receive an inspection from a fire-mitigation specialist like a retired fire chief, who issues a report on what the owner must do to eliminate vulnerabilities \u2014 which include openings that embers could fly into, combustible trees like junipers and flammable building materials like cedar shingles.
It can take a homeowner years to receive a certification and that does not necessarily translate into discounted premiums \u2014 but it does mean insurers will not refuse to insure the house.<\/p>\n