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Front Light Insurance

Wildfire Insurance: What To Learn Before the Burn

wildfire insurance

California is a beautiful place to live full of many splendors, from the snow-capped peaks of the Sierra Nevadas to the warm sands of Laguna Beach to the… wildfires? Not everything is perfect in paradise. That’s where wildfire insurance comes into play.

Life in the sunshine comes at a high price: high taxes, high rent, and natural disasters. With the dry winter months upon us, Californians must once again turn their thoughts to wildfire season.

In October and November alone, we’ve experienced three serious brush fires in Los Angeles: one in Pacific Palisades, one near the Getty, and one in the Sepulveda Basin. Evacuation orders have long since lifted, and, luckily, the damage was minimal to homes and businesses. But these fires beg the question: what is next to burn?

Californians remember the all-too-recent Woolsey and Camp wildfires. In November 2018, Malibu’s Woolsey Fire cost three people their lives and burned 100,000 acres and 1,500 structures to the ground.

In the same month, Butte County’s historic Camp Fire became the deadliest in state history, consuming 150,000 acres, killing 85 people, and erasing the entire town of Paradise, California off the map.

Together, the two fires burned 250,285 acres and destroyed over 20,000 structures, costing $19 billion in property damage.

When the cinders finally died out across the state, all that remained were ashes, tears, and questions. The fires were a wake up call for many Californians who realized, many for the first time, that they were unprepared for the worst case scenario.

After the fires, Californian homeowners and business owners rushed to purchase wildfire insurance but were were met with sky-high rates or outright refusals from insurance companies to provide coverage in fire-prone areas. 

Wildfire risk is a new cost to consider for Californian homebuyers. Homes in high-risk fire zones might be more affordable, but wildfire insurance might be impossible to secure.

If a family’s home were to burn in a wildfire without wildfire insurance coverage, they could lose everything in a matter of minutes and be unable to recoup their financial losses.

The rising cost of insuring homes in fire-prone areas will have far-reaching implications for California’s real estate and housing market in the future as commercial and residential developers avoid high-risk fire zones.

According to the Sacramento Bee, homeowners in fire-prone areas have been experiencing insurance rate hikes nearly double their usual premiums.

In June, a Wildfire Strike Team reporting to California Governor Gavin Newsom and the state legislature concluded those in fire-prone areas pay 50 percent more for homeowners insurance than those in low fire-risk areas.

“After two consecutive years of massive homeowners insurance loss ratios of insurers–201% in 2017 and 170% in 2018–there is a sense of urgency about the decreasing availability and affordability in 2019, especially for regions with high wildfire risk.”

Over the past two years, insurance companies have paid nearly $25 billion in wildfire-related insurance claims to insureds across California, with $10 billion from the October 2017 Northern California Firestorm and $11.8 billion from the November 2018 Camp and Woolsey Wildfires alone.

Solutions for the future might include state-issued subsidies for those already living in high-risk fire zones. These subsidies, however, would unfairly burden taxpayers who don’t live in high-risk fire zones. 

Unfortunately, insurance companies  are not required to notify the California Department of Insurance when a customer loses coverage.

Therefore, families who think they’re covered under their current wildfire insurance policy might have to double-check that their insurer hasn’t canceled their policy without warning.

With homeowners insurance in California operating at a net loss, the costs of insuring high-risk fire zones are quickly becoming too high for insurers.

Farmers, State Farm, Nationwide, and Travelers insurance have all increased their homeowners insurance rates since 2018 at an average rate hike of 7.2% across the board.

The California Fair Access to Insurance Requirements (FAIR Plan) was created in 1968 is a syndicated fire insurance pool for people who, for reasons beyond their control, have been unable to obtain property insurance in the voluntary market.

Many Californians living in fire-prone areas have turned to the FAIR Plan for basic property insurance coverage, with as many as 34,000 currently enrolled despite a recent 20% rate hike in April.

Surplus insurance carriers, who do not have to follow state insurance regulations, have also seen their customers swell in fire-prone areas. In Sonora, only 331 people bought surplus insurance policies in 2014, a number that tripled to 1,078 in 2018.

In their June report, Governor Newsom’s Wildfire Strike Team proposed three options for providing wildfire coverage in the future: establishing a liquidity-only fund (a fund to provide liquidity for utilities to pay wildfire damage claims), modifying California’s liability standard under inverse condemnation to one based on fault, and establishing a wildfire fund which would spread the costs of wildfire damage among stakeholders.

It’s been a quiet year for wildfires so far, but that could change with a single spark.

While many homeowners insurance policies can help cover damages incurred during a wildfire, most will not provide the coverage you need. Consult with your friendly Frontlight insurance broker today to discuss the coverage you need to beat the heat.