Kathleen Pender: Amid fires, insurance companies drop California homeowners
Onethird of policies weren’t renewed in 2019
Faced with growing wildfire risk, insurers declined to renew nearly a third more homeowners policies in California in 2019 than they did in 2018, according to new data released Monday by the state Department of Insurance.
Nonrenewals grew by 55,792 policies, or 31%, to 235,250 in 2019 statewide. Nonrenewals grew by 61% in areas with moderate to very high fire risk and 203% in the 10 counties with the highest exposure to fire risk. The department released the data in connection with a fourhour “virtual investigatory hearing on homeowners insurance availability and affordability” Monday afternoon.
Homeowners, consumer advocates, real estate agents, department officials, state legislators and representatives of fire districts and departments called on Insurance Com-Homeowners missioner Ricardo Lara to, among other things, provide discounts or guarantee coverage to homeowners and communities that take steps to reduce their wildfire risk.
Insurance company representatives called on the commissioner to let them use modern catastrophe forecasting models ( rather than historical losses) and their reinsurance costs in homeowners’ premiums, adopt stricter building standards to save homes and review their rate requests more quickly.
who can’t get coverage from stateregulated, mainstream carriers are turning to surplus lines carriers, which are not regulated by the state, or to the Fair Plan, which is backed by regulated insurers and will insure those rejected by mainstream carriers. Fair Plan policies cover fire and limited smoke damage but exclude many other types of coverage found in a standard homeowners policy, such as water damage and liability. Many homeowners buy a “wraparound” policy to cover those perils.
In 2019, the Fair Plan sold 190,196 policies, which was 50,058 policies, or 36%, more than they sold in 2019, the department said. Sales increased 112% in ZIP codes with moderate to very high fire risk and 559% in the 10 counties with the highest fire risk.
Colleen Cross, a retired public
school teacher, lost coverage when Merced Property & Casualty Co. was unable to pay the claims after the Paradise Fire and went out of business in December 2018. She had until January to find new coverage.
“I called agent after agent, and they all said they are not writing new policies for homes in the Sierra foothills,” Cross said in the hearing. Her premium went from $ 1,500 with Merced to more than $ 4,800 for a Fair Plan plus wraparound policy. When her renewal notice came, it was for $ 6,300.
Cross said she went to great lengths to clear vegetation, cleared a road on her 3acre property and attached a fire hose to a 2,500gallon water storage tank. But when she shopped around for new policies, companies would not take those efforts into account or inspect her site, saying they went only by ZIP code and fire risk zones, she said.
Chris Swarbrick, a director with the El Dorado County Fire Protection District Board of Directors, told a similar story. He said he lives in a Firewise community, which has taken steps to mitigate risk, and has hardened his own 10acre property, including clearing 3 acres to dirt and installing all the fire hoses needed to completely protect his house. But “insurance companies don’t particular care, to be quite honest,” he said. “The reality is, they don’t want to look at it.”
When Liberty Mutual declined to renew his policy in 2012, he went with Farmers, which dropped him in 2014. He then went with Merced. When it went under, he bought a policy from a surplus lines carrier and his premium rose from $ 1,300 to $ 3,400. When that policy was set to renew at $ 10,000, he got a Fair Plan plus wraparound policy for $ 6,000, but he recently got a nonrenewal notice on the wraparound policy.
Kevin Taylor, chief of the Montecito Fire Protection District, said his department spends more than $ 300,000 a year on wildfire prevention but its efforts are not considered by insurers.
State Farm representative Nicole Forziati said her company has stopped selling new policies in some areas of California but has not refused to renew existing customers because of wildfire risk. State Farm “must consider limiting growth” if it wants to “maintain financial strength to pay those claims whenever they come, at whatever number they come,” she said.
Ryan Vigus, a representative of the CSAA Insurance Group, said that wildfires are increasing, killing people, destroying homes and driving rate increases where urban and wildland areas meet, yet building and rebuilding continues in these highrisk areas. He proposed several solutions, including engaging local stakeholders in landuse issues and extending building codes designed to protect homes from wildfires in highrisk areas to broader areas of the state. He also urged the department to expedite the review of rate filings and bring mitigation discounts to market in a way that is driven by data, not politics.
He said CSAA wants to provide discounts, but insurance prices in highrisk areas are already too low. If the state adopts discounts, it should give companies an “expense allowance” to cover the cost of making sure mitigation is completed and maintained.
A group of insurance companies submitted a 20page paper outlining its position on these and other issues raised in the hearing.
It said, “When mitigation discounts can be accurately estimated, insurers are often enthusiastic about offering them, provided they can be applied to actuarially sound rates.” However, “the current and increasing wildfire threat to residential property in California presents a complex series of risks. Homeowners insurance premium rates are based on measurable risk, and while mitigation efforts presumptively serve to decrease that risk, the scientific measurement of catastrophe risk and mitigation efforts is still maturing.”
When the hearing concluded, Lara said he will use his existing authority as insurance commissioner, “informed by public input from the hearing,” to take various actions. These include: building on existing homehardening standards based in fire science and making them consistent and applicable to all insurance companies; giving consumers access to their wildfire risk score, which many companies use in underwriting and pricing, and what they can to do improve it; creating insurance incentives recognizing home hardening and community mitigation actions; and requiring that insurance companies stop “gaming the system” by requesting rate increases just under 7% to avoid public participation in their rate filings.