North Bay residents face new risk after wildfires: insurers dropping their homeowner policies
Stacie and Jad Elkhoury avoided tragedy two years ago when flames from the Nuns wildfire stopped just short of their home southeast of Sonoma. The house did suffer some smoke damage to upholstery and rugs, for which they filed a claim with their insurance company, Nationwide, for reimbursement.
However, a few weeks ago, the Elkhourys were notified by a different insurer the coverage on their vacation home in Truckee - where they took refuge in 2017 after the fire - was being dropped because it was in a brush zone. Such areas with trees and vegetation make properties a high fire risk.
The couple has owned the 2,000-square-foot property in the Northstar Resort development since 2015. Lloyd's of London, the London-based insurance market that specializes in insuring higher risk global properties, covered the home because it already was difficult to find a traditional home insurer.
“Our property has never been threatened up there. If that's a high risk, I just can't imagine what it is for Sonoma County,” Stacie Elkhoury said, noting the local home is insured by Nationwide's private client group.
She now fears the same scenario could happen with the family's Sonoma home. “I'm really afraid it's just a matter of time,” Elkhoury said.
The Elkhourys' experience is playing out across California, as many other homeowners also are receiving similar policy cancellation letters from insurance companies. This insurers' adjustment of risk isn't just the result of the 2017 wildfires that devastated Sonoma County, but also what happened last year in the communities of Redding and Paradise and elsewhere in California. The insurance sector is adapting to the new normal of frequent and severe wildfires statewide.
There is no official count of how many county or state homeowners are receiving home insurance cancellation letters, but insurance agents said they expect the number will increase this year as insurers comb through their customer files and drop coverage of properties in regions where they have an overconcentration of risk.
“Folks have started to get notified the last six to eight months. … It's going to continue,” said Rich Stark, personal lines department manager at the George Peterson Insurance Agency in Santa Rosa. “What was an acceptable risk on September of 2017, can be an unacceptable risk today.”
The downside for those who receive such letters from home insurers? Get ready to pay an annual premium about double, at minimum, to cover your home with a new insurer, Stark said.
Insurance market still stable
Despite the uptick of insurers not renewing homeowner policies in risky areas, the California insurance market remains relatively stable as analysts and insurance agents said they aren't aware of any carriers who have stopped writing new property policies. It's nowhere like Florida, they say, where home insurers essentially stopped writing new homeowner policies in much of the state after major hurricanes nearly 30 years ago and again in 2004 and 2005 - forcing the state to fill the void as the home insurer of last resort.
That's not the case in the Golden State. The California home insurer of last resort, which is called the FAIR plan, covered only 122,687 homeowner policyholders of more than 8 million statewide at the end of 2018. That was a decrease of 482 policyholders from 2017.
The state's insurer of last resort, however, has been a necessary safety valve to insure those homeowners who reside in rural fire-prone areas around the Sierra Nevada mountains, and places such as Lake County, where residents have seen large swaths of land torched in recent years.
“We still see this as a pretty healthy market,” said Janet Ruiz, the West Coast representative of the Insurance Information Institute, a national insurance industry trade group. Insurers typically comb through their portfolio on a periodic basis to insure they do not have too much risk in a certain locale, Ruiz said.
Insurers want to avoid what happened to Merced Property & Casualty, a small insurer that closed as a result of property claims filed after the November Camp fire, the costliest disaster in the world last year with $12.5 billion in insured losses. Merced had $64 million in claims and only $23 million in assets, and so was taken over by the state Department of Insurance.
The policyholders were protected, though, because Merced was covered under the California Insurance Guarantee Association, which will pay up to $500,000 per claim for carriers that become insolvent and our members of the organization.
Some insurers still see opportunity in the California insurance market, Ruiz said. She said that companies such as Delos Insurance Solutions and Spinnaker Insurance Co. of New Jersey have entered the market, which has attracted so-called surplus lines insurers that cover risks outside of standard underwriters.