Endicott: Homeowners in areas of high fire risk hit with sudden policy cancellations
Last year, JoAnna Price of Napa returned from vacation to a letter stating that her insurer, Safeco, would not be renewing her home insurance because of heightened wildfire risk.
“I would say we were shocked to say the least,” she said. “‘Welcome home, you no longer have insurance.’”
She’d been insured through the company for eight years since buying her Napa home without issues or filing any claims. Suddenly, she had two months to find a new carrier.
“No alternatives, no ‘let us help you out,’ no nothing,” she told me. “So, we started scrambling.”
In the end, she was able to find alternative coverage through State Farm Insurance, but the situation left her bewildered. While the threat of wildfire is a real risk in the North Bay, she said her stucco home with a tile roof is in a suburban neighborhood in city limits that had not previously been considered within a high fire risk area.
“There wasn’t any logic to it,” Price said. “Why now? I want to understand that.”
Price is not alone.
As a new climate reality sets in, complete with more frequent and intense wildfires, sea level rise and unpredictable storms, people living in higher fire risk areas in particular are increasingly facing sudden cancellation, the refusal of residential insurance coverage or unmanageable premium costs.
These decisions, which can feel arbitrary or abrupt, have left many Californians — particularly those in Northern California — in a tight spot, especially because insurance is required for a mortgage.
California’s devastating and deadly 2017 and 2018 wildfire seasons set off what some people see as an impending insurance crisis, as companies, confronted with the reality of massive policy payouts, have started to pull back to limit exposure, leaving residents in the lurch.
Wildfires that tore through the North Bay in 2017 leveled communities and are considered some of the state’s most destructive. The next year, the 2018 Camp Fire, California’s deadliest, ravaged Butte County.
While those years stood out, the 2020 Zogg Fire in Shasta and Tehama counties killed four people and destroyed hundreds of buildings and the state’s 2021 fire season multiple blazes ranking in the top 20 largest wildfires on record by acreage.
"Prior to those two big fire years, homeowners insurance had been relatively stable for a very long period of time, and then, all of a sudden, it wasn't,“ said Rex Frazier, president of the Personal Insurance Federation of California, a nonprofit insurer trade association.
Frazier said the two fire seasons wiped out 24 years of underwriting profits industrywide.
“It was just a massive shock to the system that such a large amount of money could be paid out in such a short period, and with a rate structure that was really based on an underlying assumption that homeowners’ insurance is kind of this boring, stable thing.”
According to a November 2022 report, nonrenewal insurance rates more than doubled in 2019 in ZIP codes with the highest wildfire risk.
The latest data from the California Department of Insurance shows that insurance companies non-renewed 241,662 residential policies in 2021. Though that includes nonrenewal for any reason, not just wildfire risk, such nonrenewal rates have trended upward since 2015.
Since 2018, enrollment in the FAIR Plan, Californians’ property insurer of last resort, has increased from 126,709 to 272,846. It is a less than ideal option with high rates and restricted coverage limits despite some recent reforms, and many warn its continued expansion is unsustainable.
Policy intervention
As insurance giants have announced plans to scale back in California, policymakers at the state and federal level have taken up the issue.
To protect consumers in the short-term, the California legislature passed SB 824, which bars insurance companies from canceling or refusing to renew policies in certain ZIP codes due to being in wildfire areas for one year after a state of emergency was declared.
More recently and expansively, the Department of Insurance finalized a first-in-the-nation “wildfire safety regulation” in October 2022 that will require insurance companies to offer discounts to homeowners and businesses who take appropriate steps to mitigate fire risks on their properties, for instance, hardening homes.
Importantly, under the new rule, policyholders are entitled to know their assigned “wildfire risk score” and can appeal that score as the basis for refusing renewal or provision of coverage.
Still, to take advantage, residents must be able to afford wildfire mitigation projects on their properties, which can cost thousands of dollars and be out of reach. There have been some state and federal funding opportunities, but many have called for more support, from the government, but also the insurance industry.
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