Struggle for home insurance: Santa Rosa couple faces almost 200 rejections after cancellation

Gretchen and Rick Melendy estimate they’ve spent well over 100 hours researching, filling out forms and making calls in the last few weeks as they scramble to find home insurance after they were suddenly dropped by Farmers Insurance earlier this month.

“I think we’re up to almost 200 denials,” Gretchen said. To manage all the calls, Rick even set up a separate Google number “because they were just burning me up,” he said.

While no one will insure their home, the offers of auto or personal property or life insurance have poured in.

“I’m afraid to look at my phone some days,” Rick said.

The Melendys’ northeast Santa Rosa home, where they’ve lived for more than two decades, has always been insured through Farmers. Rick has been a customer since he was a teenager. They’ve paid on time, more than $100,000 in premiums, and have never filed a claim. Three fires have come close but never burned their property. They understood as their rates have climbed.

Now, Gretchen bristles at the insurance commercials she sees. “You know, Farmers, ‘we’ve got you covered,’ Allstate, ‘you’re in good hands,’” she said. “They’re just crunching the numbers. They don’t care. Ours is a good example: 22-year customer canceled flat out, and a week later, they sent us a ‘happy birthday’ card. There’s no loyalty.”

Rick’s family has been here for generations, “owned several businesses, properties, homes,” Gretchen said. “We don't want to leave Sonoma County.”

But, even that doesn’t feel like an option now that their house has been deemed untouchable by insurers. Their neighbors, too, have started getting the same bad news.

Forgoing insurance isn’t on the table. Without it the mortgage company can call their loan due and even foreclose. The only choice left is the FAIR Plan, California’s fire insurer of last resort, which they’ve been told will cost them $13,000 per year for far less coverage.

Rick retired four years ago, and Gretchen works for the county’s Adult and Aging Services, helping keep people in their homes, ironically, she points out. “You go to retire,” she said, “and this wasn’t part of the calculation, losing all this money in our home and our most important asset.”

The Melendys’ experience isn’t new, but it is part of an increasingly dire trend in California. In the last year, several large and small property insurance providers — from Allstate to Farmers to USAA — are limiting business in the state or leaving altogether.

State Farm, California’s largest insurer, announced in March it would drop 72,000 home policies starting this summer. California’s FAIR Plan has swelled to 375,000 policyholders, with a reported 900 new applications a day, and faces a loss exposure of $311 billion.

A major wildfire would overwhelm reserves, the FAIR Plan Association president warned in a recent state legislative committee hearing. With the program under strain, customers meanwhile have had trouble with delays, making payments or even sudden loss of coverage.

No easy fix

Back-to-back years of catastrophic wildfires starting in 2017 crystallized the climate threat in California to lives, businesses and homes, as well as insurers’ financial stability. Recent years have been quieter and the insurance industry recouped considerable losses from PG&E for the utility’s role in sparking the fires. But those blazes wiped out decades of underwriting profits, insurers say, and painted a stark picture of what is only projected to become more likely.

The risk has grown as more people fall into what are now considered wildfire threat areas.

Insurance companies have raised rates as the costs they cover, like repairing or replacing homes and cars, have spiked. Reinsurance, whereby an insurer sells a portion of its liability to other insurers around the world — essentially insurance for insurers — also has become a lot more expensive.

California’s regulatory system, in particular, and its slow approval process for rate hikes, have left the industry little room to adapt, said Denni Ritter, western region vice president for government relations at the American Property Casualty Insurance Association, a national trade association for home, auto and business insurers.

“We've been ringing alarm bells that we were reaching a crisis point,” she said. “There is no easy fix, but there are things we can do to improve the situation.”

Some of those things the insurance industry wants, it appears to be getting. Insurance Commissioner Ricardo Lara proposed a regulation in February that would streamline the rate approval process. Another rule, unveiled in March, would allow insurers to use catastrophe modeling projections instead of just historical data in setting premium prices.

Ritter said these are indeed positive steps depending on the final details and the speed with which they’re rolled out, but also cautioned “no one solution is going to rectify the situation overnight.”

“We have to go in here with eyes wide open that it’s taken us years — it's been a slow-moving train wreck to get to this situation — and it’s probably going to take a while to turn the ship around,” he said.

While acknowledging the legitimate challenges faced by insurers, consumer advocates worry the industry is leveraging its position to weaken hard-won protections it has long sought to undo.

“There's a part of me that does feel that the industry is trying to stick together until they get the deregulation that they want,” said Amy Bach, executive director of United Policyholders, a nonprofit that informs and advocates for insurance consumers. She noted that there’s a concerted push to deregulate all around the country.

She also said, shortly before State Farm decided to drop tens of thousands of customers, the company won approval for a 20% increase to home insurance rates.

There’s a fear that what’s given up won’t be returned in kind. Critics point to Florida, where insurers have everything they’re asking for in California — higher-than-average rates, catastrophe modeling, the pass-through of reinsurance costs and the like — and yet cancellations and nonrenewals abound.

Ritter said Colorado is a better state for comparison, but while the outlook isn’t as bleak, Colorodans are starting to face similar challenges as their counterparts to the west and east.

Taking insurers at their word might provide little comfort. “Florida may be a real-time example where the climate crisis has driven the risk and the loss so high that there isn't an affordable price at which the insurers can still continue writing insurance,” said Dave Jones, who directs the Climate Risk Initiative at UC Berkeley and served as California’s Insurance Commissioner from 2011 to 2018.

For that reason, Jones said, addressing the risk drivers is crucial to the long-term stabilization of the insurance market, namely slowing down climate change and investing even more in forest management and wildfire mitigation.

That may be the one point where experts, insurers and consumer advocates agree. Although, Jones points out that the insurance industry still invests in and underwrites the oil and gas sector exacerbating the climate conditions insurance companies say are imperiling their business.

With society still in transition, projects and oil rig workers and truck drivers and others who support the fossil fuel industry still need protection, Ritter said.

“It's just a part of the economy, and there are people that need coverage, and I don’t think that the insurance industry is in a position to strip them of it.”

Homeowners left scrambling

To homeowners who have found themselves dropped, the decision can feel unceremonious, arbitrary or even disingenuous.

In February, Wayne and Irma Wilson, who live just outside Petaluma, received a letter informing them that, based on an aerial photo, AAA Insurance would not renew their home insurance policy May 4.

“The dwelling or premises shows signs of clutter or unsanitary conditions including but not limited to: miscellaneous debris, tires or hazardous waste, appliances, and/or dilapidated vehicles, which is an unacceptable hazard and liability exposure,” the notice said.

The Wilsons couldn’t make sense of it. The description sounded nothing like their home.

“Basically, they made it sound like this place was a dump,” Irma said.

The couple does their own work around the house, trimming trees and stacking lumber for home improvements. Once a year, they get a shredder to turn wood to mulch for the garden.

“We live in the country,” Wayne said. “That’s what we do.”

Several calls and messages later, they’re still unsure what conditions the letter is referring to or exactly when the photo was taken. AAA won’t provide them with a copy of the image. Agents have mentioned wood by the barn or their 23-year-old roof, or structures that are long gone from the property. At the same time, the Wilsons’ nonrenewal notice stated their wildfire risk score was zero.

“What it’s getting down to here is we’ve got insurance companies that are coming up with what I consider very spurious reasons to cancel,” Wayne said.

The Wilsons aren’t alone in their experience. Bach, of United Policyholders, said certainly “technology has accelerated the rate of change” in the insurance market. “They're no longer doing human underwriting. Everybody's a number.”

Now, “we’re stuck, and we’re running out of time. It’s very emotional,” Irma said. “And then, at least give me the proof. Let me fix it.”

New rules require insurance companies to offer discounts for customers who take steps to reduce wildfire risk on their properties, but “you don't get to the discount unless the insurance company is willing to renew or write your insurance,” said Jones, of UC Berkeley.

SB 1060, introduced in February, would require insurers to consider home hardening and forest management in underwriting decisions not just rate setting.

In the meantime, the consequences keep rippling outward. Nationwide dropped Jim Doerksen’s home and newest rental property but kept three other rentals, though they’re all on the same land. Now he’s paying over 300% more for the two houses he had to move to the FAIR Plan, and the deductibles are tenfold higher. Some of those added costs will trickle down to renters.

With the FAIR Plan’s limited coverage, too, he’s worried what will happen to him and most of his neighbors who were outright canceled if a fire does burn through. “I wouldn't be close to being totally covered,” he said.

The crisis, at least, has captured the attention of top state and federal legislators and is inspiring increasingly creative solutions. New California Senate leader Mike McGuire has called stabilizing the home insurance market a top priority.

In January, U.S. Rep. Adam Schiff introduced a bill, the Insure Act, that would create a federal catastrophic reinsurance program. Bach said she and others are exploring the idea of regional public reinsurance pools.

“We’ve got our work cut out for us here because we need people to have financial safety nets,” Bach said. “We have to stay at the drawing board.”

“In Your Corner” is a column that puts watchdog reporting to work for the community. If you have a concern, a tip, or a hunch, you can reach “In Your Corner” Columnist Marisa Endicott at 707-521-5470 or marisa.endicott@pressdemocrat.com. On X (formerly Twitter) @InYourCornerTPD and Facebook @InYourCornerTPD.