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How CA Wildfires Affect Your Insurance Rate

According to the California Department of Forestry & Fire Protection (CAL FIRE), there have been 6,872 reported number of fires, 253,321 acres of land burned, 732 structures damaged or destroyed, and 3 confirmed fatalities, all within California this last year. They reported that California has witnessed one of the “deadliest and most destructive wildfires in its history in 2017 and 2018.” CAL FIRE identified that although “wildfires are a natural part of California’s landscape, the fire season in California and across the West is starting earlier and ending later each year. Climate change is considered a key driver of this trend. Warmer spring and summer temperatures, reduced snowpack, and earlier spring snowmelt create longer and more intense dry seasons that increase moisture stress on vegetation and make forests more susceptible to severe wildfire.”

The Impact on Insurance Rates

For the most part, homeowner’s insurance provides coverage to help with expenses related to repairing or replacing the home following a fire. Some policies may even provide coverage for living expenses due to the fire, such as food, hotel costs, and transportation related to evacuation. However, the problem of insurance does not lie within the policy itself, but instead in obtaining the policy in the first place, and getting it for an affordable price.

Homeowners who live close to an area prone to brush fires and wildfires will usually be required to pay a higher amount for their coverage. In some cases, homeowners will even be denied a policy. This is due to the financial risk the insurer is taking; in Californian in the last two wildfire seasons, insurers have been hit by $24 billion in losses.

In fact, according to the Department of Insurance, “on average home insurance rates in areas of high risk of fire are at least 50% higher than rates for homes outside the [wildland-urban interface].”

One resident in Placer County reported that over the last few year’s her insurance premium had raised to $6,300 per year; however, following the most recent fires, her insurer dropper her policy and the cheapest replacement available started at $6,900 per year. The impact of this goes beyond insurance as well, as many homeowners find that the value of their home is declining and/or they are unable to sell due to a buyers’ inability to get insurance.

Unfortunately, the data to completely understand the changing rates is vague – the Department of Insurance has yet to release statistics on the overall increase in rates, and they are limited with their data since insurers are not required to report when they drop a client. This lack of communication and reporting is making it difficult for advocates and lawmakers to get a full grasp on the situation.

Forecast of Insurance Rates

The biggest challenge has been in finding the balance. Insurers have identified that the hikes have been necessary to remain in business. Recent claims have identified that for every $1 insurers in California have recently collected, they are paying out $1.70. Due to the influx in fires and damage, insurers are paying out more each year.

However, in order to increase prices, insurance companies are required to submit a rate filing that documents the company’s losses and what they expect to pay out. But with what the statistics supporting their claims, most companies will get approved.

For those individua’s who are limited due to their financial position, they can turn to the FAIR Plan which “provides insurance as a last resort, and should be used only after a diligent effort to obtain coverage in the voluntary market has been made.”

The California Fair Access to Insurance Requirements (“FAIR”) Plan was created in July 1968 following the 1960’s brush fires and riots. It is an insurance pool established to assure the availability of basic property insurance to people who own insurable property in the State of California and who, beyond their control, have been unable to obtain insurance in the voluntary insurance market… The California FAIR Plan does not estimate the fair market value of your property, the cost to rebuild your property, or the cost of labor and materials in your (or any other) area, or determine the appropriateness of the coverage you request. Instead, those are your responsibilities.”

As a result, it is a bare-bones coverage plan.

Keeping Your Home Safe from Wildfires

With an increased number in fires and hiked insurance rates, it is an essential time for homeowners to take precautions to keeping their home safe. Here are some recommendations:

  • Make sure to keep your yards clear of shrub and dead vegetation; remember to mow, prune, and water your yard on a regular basis.
  • Keep roofs and gutters clean, removing all overhanging branches and tree limbs that could pose as a risk.
  • Use non-flammable construction materials and apply fire-retardant finishes to exterior wood.

These practices can reduce the risk of your home and property being impacted by fires.

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