Homeowners struggling to obtain fire insurance may have relief on the horizon as lawmakers work to bring insurance companies back to California.
In recent years, many insurance companies have begun canceling policies across California, blaming a mix of climate change, extreme weather, and rising costs.
“This is the worst I’ve seen it since 1994 and the Northridge earthquake,” Christopher Baxter, the president and founder of Baxter Insurance, told Noozhawk.
Baxter, who started his company in 1989, stated that the current climate is making companies leery of writing policies. The rising costs of construction, building materials, and the frequency of natural disasters have also placed a strain on insurance companies.
“None of the carriers want to write. Or they want to write, but they can’t write in this environment,” Baxter said. “It’s all being affected.”
The struggle to find insurance in parts of the South Coast has also been driven by recent events.
In December 2017, the Thomas Fire devastated large parts of Santa Barbara and Ventura counties. By the time it was extinguished, 281,893 acres were burned, 1,063 structures were destroyed, and two people were dead.
A month later, in 2018, the storms arrived and triggered debris flows that brought down mud and rocks onto Montecito — killing 23 people.
These events mixed with changing weather and costs of paying out on insurance policies have made providers reluctant to provide insurance in parts of California. Some have even left the state entirely.
Laurie MacMillan is a member of the Riviera Association and the head of its Fire and Safety Board, which covers homes on the Riviera and up to the foothills.
She says that the lower parts of the hill have been labeled high fire risk and everything higher up is considered extreme fire risk.
“Those designations really affect everybody’s rates if they don’t get cancelled period,” MacMillan told Noozhawk. “There are 2,100 homes approximately in our association’s area, and there have been hundreds of cancellations. And most often those people cannot find homeowners insurance except for the FAIR Plan with California.”
The FAIR Plan is insurance provided by the State of California to residents living in fire-prone areas who cannot get insurance from traditional providers.
However, as the number of homeowners unable to obtain traditional insurance has risen, the FAIR Plan has taken on more residents — stretching the program’s resources.
However, state officials are working to address the insurance crisis.
Addressing the Crisis
In June, California Insurance Commissioner Ricardo Lara announced the next stage of his plan, the Sustainable Insurance Strategy, to bring insurance companies back to the state.
Under Lara’s plan, insurance companies would be required to meet different criteria.
For larger companies in fire-distressed areas, they will meet a minimum of 85% of coverage for properties. The company will be required to meet this requirement within two years of filing a new rate plan and report its progress to the California Department of Insurance.
Companies that already meet this standard must maintain this rate for a minimum of three years.
Smaller insurance companies, new providers, and companies that are not currently writing in distressed areas and cannot meet the 85% minimum must increase their policies by 5%.
Commercial insurance providers will need to expand coverage in wildfire-prone areas by 5%, according to a press release from Lara’s office. This will provide more options for farms, wineries, homeowner associations, and other businesses.
Kelly Weiser, the managing partner of the Weiser Agency, says that she likes some parts of Lara’s strategy and is hopeful that it entices large insurance providers to return.
“I’m definitely hopeful it’s being talked about,” Weiser told Noozhawk. “I think the most promising part is that now they will allow the insurance companies to do forward-looking catastrophe modeling in certain parts of the state.
“That’s something that a lot of other states have been doing for a while but is pretty new to California.”
The method, known as catastrophe modeling, will allow insurance companies to modify their prices based on the history of the region, the level of risk, and other factors.
Catastrophe modeling is a system that insurance companies use in states to assess risk across different regions. California does allow providers to use this form of modeling, but it only allows for earthquakes and fires that occur because of quakes.
Wildfires were not eligible for the catastrophe model.
Under Lara’s new plan, companies that meet the state’s new guidelines will be able to apply catastrophe modeling to wildfires, terrorism, and flood lines.
Another positive Weiser pointed out was changes to the California FAIR Plan.
One change to the FAIR Plan is the increase of coverage for commercial properties to $20 million. While she praised the change, she said that this unfortunately will not help residential owners.
Even though Weiser is happy that state officials are trying to address the insurance crisis, parts of the new strategy worry her.
One of the things she is starting to see is a massive increase in insurance plans for residents.
Because of the new guidelines, companies that stayed or are returning are offering plans that are more expensive or increasing the premiums for current customers.
Some of her clients were paying $5,000 a year for home insurance, only to see it jump to around $40,000 for the same level of coverage.
“That’s a big jump because the companies are saying, ‘Well, we got the approval. We are still insuring your home. Others would consider it high fire.’ So, they will still do it, but it puts our community members and our clients in a difficult position,” Weiser said.
Additionally, if a client can obtain insurance from a larger company, they are not eligible for FAIR – even if the FAIR Plan is cheaper.
As state officials and insurance providers wait to see whether the Sustainable Insurance Strategy works, Weiser encouraged homeowners in fire-prone areas to plan ahead and not treat fire insurance as an afterthought.
She also encouraged homeowners to be aware of when their insurance plan is scheduled to end and research options in advance. This is especially important since she claims the insurance field can change quickly, even in a matter of 60 days.
“Be proactive,” Weiser said. “Fight for yourself [and what] you want your options to be.”
