Wildfires cause turmoil in California property insurance market – NBC Bay Area
Kent Michitsch appeared to be running out of traditional options to insure the home he has lived in northeast San Diego for more than 30 years as California’s huge property insurance market is reeling from three consecutive years of destructive forest fires.
Michitsch, 57, has received three non-renewal notices in three years and says he was worried about getting a fourth when his home insurance policy is renewed in the middle of next year without the recent intervention of the California lawmaker in the market. .
âIt’s constant worry and frustration. You know you’re covered now, but I may have to look for a new policy again next year. Michitsch says he has never made a claim with his insurance and has never suffered any damage from the fire.
Thousands of homeowners like Michitsch have lost their insurance policies in recent years as insurers pull out of fire risk areas or stop insuring homes altogether. They were forced to scramble to find coverage from regular insurance providers or to turn as a last resort to a government approved plan which, for the time being, only provides fire coverage.
State Farm, the largest in the state, and Allstate and other insurers have refused to renew about 350,000 policies in areas at high risk of wildfires since 2015, the California Department of Insurance said in August, and the department got a “record number” of requests. this year insurers increase the rates they charge homeowners. The data also shows that 33,000 policies were not renewed by insurers in postal codes affected by major forest fires.
While the insurance industry claims California’s property insurance market is resilient, lawmakers and state officials have had to scramble to prevent the market from stalling in the face of the unexpected additional risk.
The California legislature passed legislation earlier this year giving the Department of Insurance emergency powers to keep policies in force for people in fire-prone areas. This month, California Insurance Commissioner Ricardo Lara imposed a one-year moratorium on non-renewals, in hopes that lawmakers, insurance companies and other stakeholders can find a way out. more substantial solution for approximately 1 million homeowners in postal codes adjacent to previous wildfires.
âThis wildland fire insurance crisis has been going on for years, but it is an emergency we must face now if we are to prevent the California dream of homeownership from becoming the California nightmare, when a a growing number of homeowners are struggling to find coverage. “Lara said in a statement.
The fires of 2017 and 2018 caused combined damage of $ 25.3 billion according to the California Department of Insurance. This is exponentially higher than previous wildfires in 2015 and 2008, which caused $ 1.1 billion and $ 719 million in damage, respectively.
The insurance industry has yet to release a damage estimate from this year’s wildfire season, but the costs are expected to be high. The biggest wildfire this year was the Kincade Fire, which started on October 23 and burned 78,000 acres in Sonoma County. It destroyed 374 buildings and damaged 60 others, according to the California Department of Forestry & Fire Protection.
“The California wildfires will likely make it more difficult for California homeowners to purchase insurance,” Stu Ryland, senior vice president of the Pacific region at Sedgwick, an insurance claims management company. “Premiums are likely to increase, especially in areas prone to forest fires and in some cases it can be difficult for consumers to find an insurer willing to purchase their insurance.”
While some insurers are pulling out and others reconsidering their home insurance pricing, home insurance is still available in one form or another to every homeowner, according to the Insurance Information Institute.
However, those who are not insurable by regular insurers should look to what is known as the California FAIR Plan, an association of government-sanctioned insurers who band together to cover the most risky properties. FAIR Plan insurance currently only covers $ 1.5 million in damages, although Lara has ordered that as of April 2020, it will cover $ 3 million in damages. Currently, the FAIR plan only covers fire, not other forms of risk, but California regulators have announced that FAIR plan insurers can begin offering full coverage.
Earlier this month, the California FAIR Plan Association filed a lawsuit to block these changes, arguing that Lara’s order is illegal.
Karl Susman, owner of the Susman Insurance Agency in Los Angeles, said the average annual premium for a plus FAIR home insurance policy to cover fires now costs around $ 2,500 per year, which is three times that much. than three years ago.
âThese forest fires are not sustainable for these companies. They are not going to go bankrupt, but they are just going to stop writing policies. “
Susman said he was concerned that without a longer-term solution, the California insurance market could repeat the experience after the 1994 Northridge, Calif. Earthquake, which prompted many insurance companies to quit. to offer insurance against earthquakes. He has already seen insurance companies limit their risks to certain postal codes as well.
âI haven’t seen anything like it in the 28 years I’ve been doing this,â he said.
Fortunately, those who still have insurance were able to start rebuilding their lives after the fires.
Maggie and Dan London of Santa Rosa lost their home in the massive and deadly Tubbs fire in 2017. They worked quickly after the fire, filing a claim and contacting their contractor the same day. But it took them two years to rebuild and relocate.
Like many who tried to rebuild after the fire, they ran into obstacles: higher costs for labor and materials and ongoing talks with their insurer. Nonetheless, Dan London believes his insurance company has done a good job. And although they bought their home in 1979, it hasn’t seen a big increase in insurance costs over time. The cost of insuring their new home is slightly higher, but Dan felt that this reflects the increase in the value of the property.
“I expected something triple, but it’s not at all,” he said.