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State blocks insurers from canceling policies in risky wildfire areas

More than 2.46 million homeowners affected by or in high-risk wildfire areas get much-needed protection.

Wildfires have become an increasing concern and a life-threatening and property-destroying reality in recent years in California.

Wildfires have burned a record 4.2 million acres this year in California, more than the past three years combined, according to the California Department of Forestry and Fire Protection. Fires have destroyed about 10,500 buildings — including several thousand homes — this year, about half of the structures lost in 2018.

Those buildings destroyed and climate change’s ever-reaching effect on the environment has evolved into a serious economic threat. California has 2.2 million homes in the government-labeled severe hazard fire zones, and many of those owners are concerned about canceled or exorbitant premium increases for homeowners insurance policies, while property insurers — think Allstate, Farmers Insurance and State Farm — are worried about the cost of claims. The Camp Fire alone caused about $18 billion in damage, and half of that was insured.

A fast-moving fire destroyed more than 5,000 homes and killed 22 people in fall 2017. Gibson Outdoor Photo/Adobe Stock

A reprieve for 2.46 million policyholders, for now

California Insurance Commissioner Ricardo Lara has stepped in with a short-term solution — a mandatory one-year moratorium on insurance companies canceling or non-renewing property insurance policies to 2.1 million policyholders, or about 18% of the residential insurance market. The announcement also affects the 364,000 homeowners included in last year’s moratorium, basically providing another year of protection.

The moratorium follows Gov. Gavin Newsom’s emergency declarations in August and September for ZIP codes within or adjacent to recent wildfires. Homeowners can check if they live in the hundreds of ZIP codes within the emergency declaration areas.

“Losing your insurance should be the last thing on someone’s mind after surviving a devastating fire,” Lara says. “My action gives millions of Californians breathing room and hits the pause button on insurance non-renewals while we take additional steps to expand our competitive market.”

Policyholder advocates applauded the moratorium, while insurance providers expected the move.

California Insurance Commissioner Ricardo Lara

The moratorium “ensures that families whose homes survived the flames do not lose their homes because insurers refuse to continue their coverage,” says Douglas Heller, an insurance expert for the Consumer Federation of America. “California law helps make it a fair deal by saying that insurers cannot suddenly drop us just because a fire got close.” 

A wildfire ravages Lake Elsinore in Southern California. Kevin Key/Adobe Stock

Non-renewals of insurance policies jump 61% in more fire-risk areas

Non-renewals and canceled policies have been on the rise in recent years, especially following each devastating fire season. 

Non-renewals of home insurance policies climbed 31% from 2018 to 2019, and a 61% increase in moderate to very high fire risk ZIP codes over the same period, according to a recent California Department of Insurance report. The dramatic increase in non-renewals prompted more homeowners to look at the FAIR Plan, an association of insurers that provides fire insurance as a last resort. FAIR reported a 36% bump in policies in 2019, and more than doubled in higher-risk fire areas.

Some insurers say that unless they can raise rates to cover the ever-increasing fire risk, they may be forced to stop writing policies. But the industry’s largest trade associations played nice following Lara’s announcement of the moratorium.

“While changing the trajectory of climate change will take time, we need to take action now to make our communities more resilient and protect the lives and property of all Californians,” according to a joint statement from the American Property Casualty Insurance Agency and the Personal Insurance Federation of California, the industry’s two largest trade associations. “This includes making sure homeowners have access to comprehensive insurance. It is important that we work together on solutions that increase insurance availability in high-fire risk areas and protect against insurer insolvency.”

Wildfires caused serious health risks to many Californians, including those who live near the San Rafael Bridge in Richmond. Laura M. Parent/Adobe Stock

‘A shared responsibility’  

The collaboration will become key, experts say.

Lara recently held a hearing on wildfires and homeowners insurance with homeowners, first responders and insurance representatives, and another is planned for Dec. 10. The goal is to “reduce the risk to lives and homes, which means everyone plays a part — homeowners and state and local governments through home-hardening, the federal government through forest management, and the insurance industry working as a partner,” Lara says.

“We agree with (Commissioner Lara) that this is a shared responsibility, which means everyone plays a part,” according to the industry associations. “We hope to work collaboratively on comprehensive solutions to better account for increased wildfire risk in homeowners coverage, which will increase the availability of insurance.”

Heller agrees, adding that the moratorium and subsequent hearing “makes clear that we have to work on understanding and reducing the risk that wildfires pose to communities throughout our state.”

Indeed, California has seven of the 10 highest-risk metro areas in the nation, including the top four spots, according to CoreLogic.

The 2017 and 2018 fire seasons were “incredibly destructive, record-setting years for wildfire, followed by a comparatively quieter 2019,” says Tom Jeffery, principal hazard scientist for CoreLogic. “When we talk about wildfire trends, it’s important to treat any decrease in fire activity as only temporary. Like most natural hazards, there is no reason to believe that the amount of wildfire acreage, or the number of homes in the path of future wildfires, will be any less.”

Feature photo of Bidwell Bar Bridge in Oroville. Auimeesri/Adobe Stock

Ron Trujillo

Ron Trujillo

Longtime business journalist-turned-communications executive who enjoys reporting on residential real estate in his spare time.