California vintners welcome higher last-resort fire insurance limits but await return of private market

California wildfire losses topping $1 billion among wineries and agricultural operations since 2017 have sparked an up to $15 million increase in coverage limits for the state’s insurance program “of last resort” called the FAIR Plan.

The state Department of Insurance announced the California FAIR Plan Association decided on March 29 to raise the limits for commercial property (Division I) and other business owners (Division II) from $7.2 million and $8.4 million, respectively, to $20 million per location. The first plan may go up to $23 million with liability.

“It really was long overdue,” California Insurance Commissioner spokesman Michael Soller told the Business Journal. “This is important to raise these limits. It’s the first time in two decades.”

While the North Coast encompassing Sonoma, Lake and Napa counties represents 8% of the state’s commercial agriculture and farm owners’ insurance market, claim losses from 2017 to 2020 add up to about 45% of the statewide total, according to the state insurance commissioner’s office.

But now, North Coast winery, vineyard and other farm operators who have endured a barrage of “fire years,” totaling $629 million in losses, may be able to breathe a little sigh of relief. California and local farm bureaus lobbied hard for the FAIR plan increases, which will be finalized by the end of the year.

“If they’re going to raise the limits, great. But what does that mean for the price? That’s the bottom line,” said Charlie Martin, who pays $35,000 a year for his $3 million FAIR Plan coverage on his 300-acre Chalk Hill Ranch in Healdsburg. He used to be pay half that under a standard policy, but after the Kincade Fire of 2019 scorched his land and claimed a few “non-essential” structures, he was forced to sign on to the government-sanctioned plan.

If Martin lasts another summer and fall without a fire insurance claim, the rancher said he may consider returning to a standard commercial property policy.

“I’m holding my breath,” he said.

Tubbs, Kincade, Nuns and Glass — Sonoma County is home to some of the worst wildfires in the state within the last six years. The rest of the North Bay and the state, for that matter, aren’t faring much better. More than 4 million acres burned in California in 2020 alone, Cal Fire reported. Double that number, and you have the acreage scorched in just a three-year period starting in 2017. In that period ending in 2020, Californians endured 45,726 structures burned and 183 fatalities.

Road back to a private-coverage market

Any protection from the wildfire threat will do for longtime Napa Valley vintner Dario Sattui, whose farmhouse with acreage was destroyed in the Glass Fire of 2020 when the raging inferno leaped over Highway 29 from Deer Park and threatened his prized Tuscan-inspired castle — Castello di Amorosa.

At one point, Sattui told the Business Journal he was without insurance on the castle main building but eventually signed up for the FAIR Plan last year.

“Absolutely,” was his reaction to the state raising the limits.

Granted, the state plan has been a work in progress, with exemptions lifted on agricultural operations that blanket the North Bay.

California Senate Bill 11, which the Assembly joined the Senate in passing in July 2021, threw out the exemptions, at least on buildings and inventory or stock. Senate Bill 505, which was also authored by Sen. Susan Rubio, D-Baldwin Park, improves access to coverage.

Napa County Farm Bureau President Peter Nissen testified before the Senate Insurance Committee to offer support for the bill. In May 2021, the farm bureau hosted Commissioner Ricardo Lara at a forum in Napa Valley to hear fire insurance concerns.

“In Napa County, there are a number of farm bureau members who continue to experience problems with wildfire insurance. For those agricultural businesses that have been able to maintain insurance through the private market, members have seen their premiums triple or quadruple on average for a mere fraction of the coverage they once had,” Nissen said in a drafted statement as a California Farm Bureau Ag Alert by Napa farm bureau CEO Ryan Klobas.

Many view the FAIR Plan as a stopgap measure to help commercial ag operations get by until they can get back to standard, private-market coverage.

“The goal is to get everyone back to the ‘admitted’ market,” Klobas said.

But as long as Mother Nature’s wrath bears down on California each year the FAIR Plan serves its purpose, even if it’s an expensive policy, noted Janet Ruiz, spokeswoman for the western chapter of the Insurance Information Institute, a trade group.

She cites the skyrocketing cost of building materials as another reason why policyholders see their premiums rise.

“We’re fortunate to have the California FAIR Plan. Inflation is driving up the prices to rebuild,” she said.

Beyond the materials, the labor shortage contributes to the rising prices as contractors struggle to meet job demands.

According to PropertyCasualty360.com — an insurance data research firm for brokers — the upward slant of the escalating costs of claims looks like a cliff.

Between 1960 and 1980, the aggregated average of California’s fire insurance claims cost $100 million per year. In the decade starting in 2000, the claims climbed by six times that number. In 2019, that figure rose to more than $4 billion, while in 2020, the industry reported these claims topped $9 billion.

“Giving businesses greater options for insurance coverage is a top priority of mine. I am pleased the FAIR Plan is stepping up when insurance companies fall short in providing businesses and homeowners access to the coverage they need,” Lara said.