California homeowners face higher insurance costs after fires
California's new insurance commissioner, Ricardo Lara, delivered bad news earlier this week to Golden State homeowners about wildfire insurance losses and policy premiums. Lara said estimated insurance costs for the 2018 wildfires, which devastated towns such as Paradise and Redding and caused massive destruction in Malibu, had risen by $2.3 billion to $11.4 billion -- a 25 percent increase and a record for the state.
Total losses from California's more than 8,000 wildfires exceeded $18 billion last year. But the steep insured losses also mean higher premiums for homeowners and businesses, including the 3.5 million homes in harm's way from future blazes.
Just how much will rates rise? If a December 2017 report from the California Department of Insurance (CDI) -- issued before the state's worst fire year -- is any indication, those who previously paid $800 a year for a policy could now be charged up to $5,000. Insurers said additional hikes are inevitable.
California "homeowners are experiencing rate increases in high wildfire risk areas," said spokesperson Janet Ruiz of the Insurance Information Institute (III), which represents property insurers nationwide. At this point, however, neither the III nor the CDI can say just how much.
This isn't good news for Californians, and not just those who were burned out or had to flee their homes last year, but also those likely to pay the same rate hikes because they live in the Wildlife Urban Interface. These areas -- in which rural forests and brushland touch on suburban housing tracts -- are both the most vulnerable and most desirable within the state. So insurers have to factor in rebuilding costs.
"We've heard from the industry that labor shortages and the cost of building materials has increased," said Ruiz. "The tariff on Canadian products is raising prices because the U.S. uses a lot of Canadian lumber."
While fires can burn down a whole town like Redding in just a few hours, rising insurance costs are more likely to represent a slow-moving crisis for the state. Insurance rate hikes can take almost a year to get approval, said Ruiz, and even longer if citizens or advocacy groups challenge them.
Will insurance become unavailable?
The CDI can deny, minimize or slow down insurance rate hikes, but insurers have their own answer: either refuse to insure areas prone to wildfires or leave the state altogether. Former California Insurance Commissioner Dave Jones warned of the "growing problem" of fire insurance unavailability before he left office at the end of last year. And major insurance trade groups have said there isn't much likelihood that anything will change the "current course of market contraction."
What can California homeowners do, particularly those who live near a forest? The III's Ruiz advises them to shop around. "I refer people to insurance brokers who are local and know which companies are offering insurance in high-risk areas," she said.
If a regular insurer won't cover your home, look to the California FAIR plan, a state pool that provides an alternative, although it's expensive. Or try to purchase a premium from a "surplus" carrier not licensed in the state. Lloyd's of London often offers coverage through its insurers, but when prices increase or problems arise, it's difficult to appeal for help to the state.
In addition to the rising price of insurance, homeowners have another cost to endure: cleaning up their property by removing brush and trees, and hardening it against fire losses with fire retardant. In the 2017 report, the CDI recommended the "Boulder" plan: Each homeowner pays a fee and has to prove they've mitigated the danger of a fire burning down their house to purchase coverage. Some insurers already adhere to this in Colorado because it protects property -- and firefighters.
According to the CDI, "Firefighters will not risk their lives to defend an unmitigated property."
