CA Insurance Exodus: Homeowner Coverage Evaporating in the Wake of the California Wildfires
By Jenny Jayne
The California wildfire catastrophe continues for many residents even after the fires go out. Vulnerable residents are left with a mess to clean up or their homes have been reduced to ashes.
But even as the ashes are settling, residents of wildfire-ravaged areas that the California Department of Insurance is calling “The Wildland-Urban Interface” or WUI, are facing yet another looming threat. National big-name insurance companies offering home and property insurance are cutting their losses and evacuating California in droves, leaving entire communities in financial crisis.
California communities, already devastated by wildfires or even just in high-risk fire zones, are facing double and triple rate hikes or being dropped from their insurance carriers altogether, reports The Sacramento Bee:
Two consecutive disastrous wildfire seasons have created a budding insurance crisis for thousands of Californians who live in and around fire-prone areas. Stung by $24 billion in losses, insurers are imposing rate hikes or dumping customers altogether, leaving homeowners to seek replacement policies that can be two or three times as expensive. (source)
The rate of affected California residents continues to grow – so far, insurers have dropped 350,000 California residents from their policies.
Insurance companies are leaving California over massive losses.
As Fox Business explains, “Last year’s Camp Fire, the deadliest and most destructive in California history, engulfed more than 18,000 structures and killed more than 80 people before it was contained. It caused more than $12 billion in insured losses.”
Insurance providers face devastating losses from payouts due to wildfires. Some providers didn’t survive at all. One smaller insurer crumbled under the pressure and became yet another casualty of the wildfires. “The Camp Fire…also claimed one additional victim: Merced Property & Casualty, a small carrier that folded under the weight of roughly $100 million in claims from the Paradise disaster,” The Sacramento Bee reported.
Other insurers are taking note of the demise of one of their own and are getting out of California’s high-risk areas. This poses a massive problem for the residents of those areas, many of whom are low-income families without the resources to endure sudden enormous increases to their insurance premiums even while state officials struggle to enact insurance reform.
Insurance Commissioner Ricardo Lara favors a proposal by the legislative task force to create state subsidies for those living inside the fire zones, which tend to be people who are already struggling economically. “There’s this misconception about folks living in the (fire areas), especially in Southern California — people think there are these multimillion-dollar homes in Malibu,” he told The Bee.
Many long-time residents are scrambling to find affordable home owner’s insurance after either receiving notice of cancellation of their policy or enormous rate hikes. Those with existing mortgages are required to keep insurance in order to keep their homes. Their options are either to find an insurer or be forced to sell their home. Some who have paid off their homes are simply risking being without coverage.
Penny, a real estate agent who shared her story with The Organic Prepper, said: “They can no longer afford their mortgage they were able to qualify for AND the additional insurance payments. And if you don’t find insurance, your lender/bank/mortgagor will tack onto your payment to cover the insurance thru (sic) some affiliate they have and you loose (sic) the option to shop for something affordable. Those who have their homes paid off are opting to not cover and figure they will just have a mortgage if a fire occurs. Some have lowered it by raising their deductible.”
“It’s really sticker shock for people to see their homeowners’ (premium) go from $1,200 to $3,600,” The Bee reported.
Residents don’t have many options to turn to.
As insurance rates rise, customers are looking desperately at every option. But there’s not much to choose from.
Some residents are forced to turn to insurers of last resort when even insurers like Lloyds of London, who are known for their high-risk tolerance, deny coverage. Those options are limited, expensive, and disappointing.
Penny told The Organic Prepper that “It came up in the public meeting that I believe Lloyd’s of London was one of the few writing policies for a bit and suddenly the light came on what a risky area this was considered and they sent out cancelation (sic) notices in mass giving 30-45 day notices to find other insurance.”
The last resort after homeowners have exhausted all other options is an expensive, short-term band-aid called FAIR, as The Bee explains:
If all else fails, they go to the California FAIR Plan. The FAIR Plan, created by the California Legislature when insurers abandoned inner cities following the 1960s riots, offers bare-bones coverage that doesn’t include theft or liability insurance. It isn’t subsidized by the state. FAIR Plan rates are regulated, but with fewer limitations compared to the traditional insurers. (source)
“The California Fair (sic) Plan is considered the wrap around plan covering the structure in case of a fire and your other insurance will then cover the contents,” Penny told us. This means that the FAIR plan will only cover your structure, and the owner will have to get additional insurance to cover anything else including contents. Penny continued, “The California Fair plan, it was made clear in the meeting, is not a long term solution and for many, it’s not an affordable option.”
Some homeowners got creative with finding obscure insurance loopholes like Lynda, who shared her story with The Organic Prepper:
“We have lost 4 insurance carriers in 3 years because of our wildfire danger. We have never filed a claim… We have insurance through the farm bureau now through a company called The Grange because we have livestock…we found our best option was to insure as a farm, which we meet the criteria for, even though it’s considered a hobby farm. The insurance was lower too.”
Insurance companies are using questionable methods to evaluate risk.
Insurance companies are dropping their customers or raising rates because of the location of the homes, even if the homeowners take it upon themselves to install elaborate “hardening” systems to protect their homes from fires.
The Bee reported a story on Jennifer Burt, a local CA real estate agent:
…she’s done everything she can to fire-proof her home in Meadow Vista, in the bushy, densely wooded Placer County foothills, even installing a sprinkler system on the roof. Yet a few weeks ago, her insurance carrier — Lloyd’s of London, known for insuring high-risk properties — told her it was declining to renew her homeowners’ policy. (source)
Insurers don’t even visit the property to see what “hardening” has been done. They lump the “bad” with the “good” risks by area and leave responsible home-owners in the lurch. Penny told The Organic Prepper she is concerned about this method of determining coverage and premiums:
“What we are seeing is that the insurance companies are not coming out to the location of the home, but looking at the location on a satellite map and declining without ever driving by or stepping foot on the property.
Many companies are looking at the chances of a particular area in general and the likelihood of it going up in flames. They then look at the ratio of houses they currently insured in that area and if it did go up in flames, what is their loss % ratio and could the company survive a hit like that. At least one company went under the Paradise fire which is the basis of their findings. Other companies just say no. Not risking it.”
It’s a problem that the California Department of Insurance takes note of in their report titled The Availability and Affordability of Coverage for Wildfire Loss in Residential Property Insurance in the Wildland-Urban Interface and Other High-Risk Areas of California: CDI Summary and Proposed Solutions:
Based upon complaints received from homeowners and members of the Legislature, the majority of non-renewals, refusals to insure, and increased premiums in these rural areas were the result of insurers’ greater use and emphasis on wildfire-risk models, which are used to underwrite and rate residential properties. Legislators, other public officials, and their constituents have expressed concern that wildfire-risk models are not accurate, do not provide satellite imagery that is granular enough to objectively identify fuel sources and other physical characteristics, and do not take into account mitigation done by the homeowner or the community. Since the wildfire-risk tools that insurers use have a measure of objectivity and a relationship to the risk of loss, CDI lacks the statutory authority under current law to prohibit an insurer from using these tools to determine whether it will issue or renew a homeowners’ insurance policy. While CDI has authority over how an insurer uses a wildfire-risk tool to classify and rate individual properties in a homeowners’ insurance program, we have no authority over the development and construction of the models. (source)
Leaving the area is not always a viable option, either.
Some find it impossible to find an affordable option and are forced to sell. But cutting their losses and getting out is still expensive and hard to do. Many are facing plummeting housing prices.
Penny told The Organic Prepper what some of her clients are experiencing:
“As a realtor, I had a full price offer in Sierra Springs last May and buyers backed out because of the cost of insurance. Another listing, we came down $65k to try to get an offer. They finally got one after lowering it a total of $120k. The original price was a good, mid grade price for the property.
And yes, buyers were discouraged due to the cost of insurance. What would have cost roughly $750 a year to cover, is now costing $3,800-$6,800. These were the bids we were receiving. The best quote at $3,800 was thru USAA which is available for vets, but not the general public.
It is so bad, as listing agents and buying agents, we are bending over backwards to find quotes before going any further. But, I have also heard of the current company covering the home, somehow finding out that someone is inquiring about insurance quotes and then dropping their coverage. So, we have to tread lightly as agents when we are trying to get quotes prior to a sale.
It’s a serious problem that we are trying not to panic about, but it is affecting us as we live here too.
Higher-end homes in the Pollock Pines area are getting quoted much higher.
I heard from another agent, his client’s home was 3,500 sqft and their insurance was being dropped. The lowest quote he could get was $20,000 a year. So, now, he can’t afford to keep the home if he wanted to, and no buyer would be willing to step in at that price. I’m afraid that we could see a market crash as the problem isn’t being fixed.
So, the result is that even tho prices are good and getting better for buyers, after tacking on the inflated insurance payment, buyers now can’t qualify for the mortgage payment they could have and they are having to lower their standards across the board to find something they CAN afford.
It is killing the market. The only ones able to afford are coming from the Bay Area.”
Penny is not the only one who fears an economic toll on the real estate market in the fire-prone areas of their state.
Jennifer Burt’s story from The Bee relayed the same fears: “I get so frustrated that the insurance commissioner won’t do anything. It’s reaching a point where it’s a daily conversation in my office as to whether insurance rates are going to kill real estate in California.”
What do you think?
The wildfires continue to have long-reaching consequences for California residents that include economic hardships and a looming real estate market crash due to astronomical insurance pricing. Have you experienced hardships due to rate increases or being dropped by an insurance carrier? What issues are you facing regarding the increased prices for California home and property insurance?
About Jenny Jayne
Jenny Jayne is the mother of two wonderful boys on the Autism spectrum and is passionate about Autism Advocacy. She is a novelist who writes Post-apocalyptic fiction and a freelance writer. Her first novel is coming soon to Kindle eBooks near you. Her guilty pleasures are preparing for hurricanes, drinking hot coffee, eating milk chocolate, reading romances, and watching The Office for the 50th time. Her website: https://jennyjayneauthor.wordpress.com/
About the Author
About Jenny Jayne Jenny Jayne is the mother of two wonderful boys on the Autism spectrum and is passionate about Autism Advocacy. She is a novelist who writes Post-apocalyptic fiction and a freelance writer. Her first novel is coming soon to Kindle eBooks near you. Her guilty pleasures are preparing for hurricanes, drinking hot coffee, eating milk chocolate, reading romances, and watching The Office for the 50th time. Her website: https://jennyjayneauthor.wordpress.com/