California Pledges to Protect Homeowners from Insurer Withdrawals Due to Wildfires

By | October 19, 2020

California’s insurance commissioner on Monday pledged to step up efforts to protect the state’s residents from wildfires and address a pullback of private insurers from the state’s riskiest areas.

Insurance Commissioner Ricardo Lara convened a “virtual investigatory hearing” on Monday to initiate a series of regulatory actions that will protect residents from the increasing risk of wildfires.

“We will reduce this risk of wildfire spread and help reinvigorate our state’s economy,” Lara said, noting that the state is in the midst of another severe wildfire season.

Since the beginning of the year, some 8,600 wildfires have burned more than 4.1 million acres in California, and to date, the total number of fatalities statewide is 31 and more than 9,200 structures have been destroyed, according to CalFire.

Several years of destructive wildfires have made insurance expensive and difficult to find for many Californians, particularly those living in high wildfire risk areas of the state, prompting Lara’s actions, which he said, will be aimed at helping stabilize the insurance market while protecting lives and homes, reducing catastrophic wildfire losses, and increasing transparency for consumers.

Lara plans to use his authority in four areas: pushing for incentives for mitigation; establishing statewide standards for hardened homes; creating fire risk scores that are transparent; requiring insurers to seek adequate and justifiable rates to protect the solvency of the market.

“You have my heartfelt sympathies and my pledge that the Department of Insurance will help make sure you get these benefits you have been paying for all these years,” Lara said.

Both rates and availability have been impacted by the wildfires, according to the California Department of Insurance.

According to the CDI, rate decrease requests have dropped to zero in the past five years, while rate increase requests have gone up.

Private carriers have been dropping coverage or refusing to underwrite in wildfire-prone areas, which is forcing more people onto the FAIR Plan, a decades-old program in California meant to be a last resort for people who can’t get insurance from carriers such as Allstate Corp. and State Farm Mutual Automobile Insurance Co.

Lara had been trying to compel the FAIR Plan to offer comprehensive policies to homeowners who lost their property insurance because of the threat of wildfires. But a judge ruled in late February the FAIR plan can’t be required to provide coverage for other hazards such as flooding or theft, a judge ruled in late February.

Lara pledged to continue that battle.

“I will not back down from my order,” Lara said.

According to the CDI, there was a 31% increase in 2019 in non-renewals in the private insurance market, and a 203% in non-renewals in top 10 counties with highest exposure homes.

At the same time, the FAIR Plan saw a 36% increase polices statewide, and a 559% increase in top risk counties, according to CDI.

“California’s voluntary insurance market has withdrawn from a lot of sectors,” said Bryant Henley, special counsel and deputy commissioner for the CDI.

The American Property Casualty Insurance Association and Lara have been at odds about making homeowners insurance more available in wildfire prone areas.

APCIA,along with the Personal Insurance Federation of California, issued a joint statement in response to the hearing:

“As the impacts of climate change are felt with larger and more intense fires and threats to our communities, lives and property we must work together as neighbors, communities, regulators and insurers to ensure access to comprehensive homeowners insurance for all Californians.”

The statement notes that insurers are seeing mounting economic losses in California, where average annual wildfire losses trailed well below $5 billion even within this millennium, and leapt to more than $26 billion in 2017 and 2018, a level of loss that is not sustainable in the long term.

“There is no easy way to address the many complex issues impacting the availability and affordability of homeowners coverage in fire-prone areas,” the joint statement continues. “However, working collaboratively to ensure rates reflect the new and increased risk of wildfire, using modern catastrophe models to better assess risk, and promoting effective strategies to mitigate wildfires puts us on the right path.”

The hearing included testimony from homeowners who lost their coverage, the insurance industry, consumer advocates and firefighting officials. Other topics included resilience, and home hardening.

As the government and private industry search for answers, wildfires continue to rage across the state.

More than 7,400 firefighters remain on the frontlines of 22 wildfires across the state, 12 of which remain major incidents. Firefighters responded to 47 new initial attack wildfires Sunday, including two fires that continue to burn in El Dorado County and Monterey County, according to CalFire’s latest report.

“Elevated fire threat continues across much of the North State as a Fire Weather Watch is in effect late Monday night through Wednesday morning,” the report states. “Above normal temperatures and lack of humidity recovery will persist this week in much of California, with only the coastal regions experiencing some relief. There is a chance of some light precipitation arriving this weekend.”

The state already looks a bit risky for insurers.

A recent report shows nearly 2 million homes, mostly in the Western U.S., with a rebuilding value of more than $638 billion are at an elevated risk of wildfire damage.

The annual wildfire report from data provider CoreLogic looked at the risk in 15 wildfire-prone states. California is home to 76% of the residences on the top 10 list, however but the reconstruction cost value of the homes comprise nearly 84% of the list.

The CoreLogic report shows the Los Angeles metro area tops the list of metropolitan areas with the greatest single-family residences at wildfire risk, with 154,462 homes with a reconstruction value of $90.31 billion. That’s followed by the Riverside (126,628 homes) and San Diego (98,970 homes) metro areas. The other California cities atop the list were Sacramento, San Francisco and Truckee.

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Latest Comments

  • October 20, 2020 at 2:45 pm
    Mark B says:
    This statement is super vague yet the most important thing to do. "pushing for incentives for mitigation" What should be said is: Clear your property for 100' in all direction... read more
  • October 20, 2020 at 1:22 pm
    Reason says:
    Observor for Insurance Commissioner
  • October 20, 2020 at 1:49 am
    Observor says:
    The commissioner can take three actions to improve the market. The first action is to allow markets to properly price the market quickly so that home owners in fire prone area... read more

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