After previous wildfires, insurers in California have increased rates or cancelled policies. How will they respond to the most recent blazes?
After massive wildfires damaged or destroyed more than 14,700 homes and caused $9 billion in insured losses, California’s head insurance regulator has proposed legislation to ensure that homeowners can still obtain homeowners insurance for at-risk properties. “In the wake of last year’s wildfires, we may see more areas of the state where insurers decline to write,” California Insurance Commissioner Dave Jones told the Mercury News, noting that insurers already pinpoint high-risk properties with new computer models.
Jones’s comments were prompted by a possible outcome of the Golden State’s latest series of fires. According to the state’s insurance department, the percentage of homes in fire-prone areas denied coverage rose by 250% between 2010 and 2016. In addition, some homeowners told regulators that their annual premiums climbed from $800 to $1,000 to between $2,500 and $5,000. By the state’s own estimate, roughly 1 million homes are located within high- or very-high-risk fire areas.
A Proposal to Keep Homes Insured
In an effort to deter insurers from raising premiums or revoking policies, Jones proposed several measures, including preventing insurers from canceling policies if the homeowner took steps to reduce the probability of a fire, such as clearing brush from around the property.
Jones further recommended that insurers obtain approval for the risk models used to assess wildfire risk and establish an appeal process with which homeowners can dispute those assessments. He added that local planners should block development in areas at greater risk of wildfires rather than wait for high insurance rates to curb new building.
In contrast, Rex Frazier, President of the Personal Insurance Federation of California, told Bloomberg that insurers should be allowed to charge rates equal to the risks posed by individual properties. “People who choose to live in the forest and local governments that continue to approve development in the forest would like less fire-prone areas to subsidize them," Frazier said. “But that just ‘solves’ one problem by creating another.”
Mark Sektnan, VP of the Property Casualty Insurers Association of America, told the Press Democrat of Santa Rosa that some insurers may still enter the market for home insurance in California, sensing an opportunity to provide coverage as other insurers exit. He pointed to Spinnaker Insurance Co. of Chester, New Jersey, which announced last year that it would underwrite homeowner policies in high-risk areas of California.
Sektnan declined to comment on the specifics of Jones’s proposals, saying that insurers “stand ready to develop workable solutions that do not disrupt California’s healthy and competitive insurance market.”
Options for California Homeowners
Homeowners unable to purchase coverage because they live in high-risk areas can secure a policy from the state’s nonprofit California Fair Access to Insurance Requirements (FAIR) program, which covers structural damage from fire and smoke. According to the Press Democrat, the number of policyholders in the FAIR program rose to 121,516 in 2016.
Since state law mandates that insurers spread the losses from one major disaster over 20 years, homeowners are unlikely to see a sharp spike in premiums when they renew, Jones said. He added, however, that “there will be some rate impact, [but] it’s too early to say how much.”