Three years after the devastating Butte Fire, residents of Calaveras County could be facing another costly disaster: a lack of fire insurance.
“Californians are facing more severe, more unpredictable and more frequent wildfires. Add to the equation, increasing development in areas more vulnerable to fire and you can see why wildfires are now an everyday threat to life and property for Californians,” said Dave Jones, California insurance commissioner, in a press release from January of this year.
Jones’ statement was 10 months before the devastating Camp Fire ravaged the town of Paradise in Butte County, and three years and two months after the local devastation of the Butte Fire seared itself in the memories of Calaveras residents. In a county that is still recovering from the Butte Fire economically, emotionally and logistically, residents here can empathize with the citizens of Paradise.
In the situation of a loss from wildfire, and with the impending potential for such a disaster at any time, the last thing anyone wants to experience is an issue with fire insurance. Some locals are encountering just such a debacle.
Carl Stoughton of West Point was recently dropped from his AAA fire insurance policy after being a policyholder for 30 years. AAA offered little condolence to Stoughton, he said, except to give him the option of the California Fair Plan, which is considered a last-resort fire policy for individuals who experience issues getting fire insurance coverage otherwise. Stoughton said he was able to find another insurance company to cover him, but the premium is 10 percent greater and covers 33 percent less of what his previous policy did.
Stoughton said AAA had threatened to raise rates and drop policyholders once before in 2007.
The citizens of West Point rallied together and switched to a round-the-clock fire department schedule, instead of just enlisting volunteers. There was a fee of $96 per parcel to support the cost. As a result, the city rating of West Point was lowered to a noncrisis situation.
Stoughton said a windstorm knocked down a Pacific Gas & Electric Co. powerline on his property in 2014, and he singlehandedly fought the fire for 20 minutes before the fire department arrived.
Instances like this are becoming more frequent and common for residents of the county and the state, as wildfire becomes a grim and common reality for California residents.
According to AAA, the company will continue providing coverage to residents of the county in designated high-fire risk areas. However, there are stipulations.
“As a leading insurer in Northern California, CSAA Insurance Group will continue to offer insurance to AAA members with homes in Calaveras County and other areas of the state vulnerable to wildfires as long as they meet our underwriting guidelines,” said Sue Saito, public relations manager for AAA.
“CSAA Insurance Group has provided homeowners insurance to AAA members in Northern California for more than 40 years,” Saito said, in response to increasing rates in high fire risk areas. “Over that time, we’ve helped thousands of AAA members successfully recover from wildfires and other disasters. To continue offering industry-leading insurance coverage at competitive rates, we continually evaluate our exposure to catastrophic risk.”
In California, citizens are protected from significant rate changes by Proposition 103, which is an insurance reform bill that was passed in 1988. The proposition requires insurance companies to submit their rate increases to the Department of Insurance and to get approval before going into effect. If this measure wasn’t in place, insurance companies could potentially charge consumers whatever rates they wanted.
One of the roles of the California Department of Insurance is to help act as an intermediary between consumers and insurance companies in contentious situations, such as if a customer is experiencing difficulty working with an insurance company for a claim or with the disputed amount of a claim.
“Almost half of California’s 58 counties have at least 25 percent of their residential housing stock in high and very high-risk areas for wildfire,” said Nancy Kincaid, spokeswoman for the Department of Insurance. Kincaid said that the technology of insurance companies has improved, and with better technology, insurance companies can use a multitude of factors to analyze and estimate fire risk areas, which can be pinpointed as accurately and as detailed as by a street address.
“Insurance companies use a variety (of systems) – they may use more than one, and weigh them differently in their underwriting. It can vary from one insurance company to another,” said Janet Ruiz, with the Insurance Information Institute.
Some of the risk evaluation systems include Verisk, Core Logic and RMS (Risk Modeling Services). The Insurance Information Institute represents the insurance industry, property and casualty, and educates the public on what insurance is and how it works, according to Ruiz.
“There are a few options for people (in) a high-risk wildfire area. The Fair Plan is the option of last resort. It is available for people who cannot get other policies. There are a couple of other options – the standard insurers, and … ‘Surplus Lines insurers,’ such as Lloyd’s of London,” Ruiz said.
Two houses next door to each other can have a varying fire risk, based on factors such as the direction the home is facing and the landscape; estimating the risk to each residence based on fire behavior.
“Ember behavior” is something Kincaid calls “the holy grail of fire science.” Kincaid said that from what is now known of fire behavior, embers travel for miles, not just yards, and that a home a mile away from an active potential wildfire may be at greater risk than previously imagined.
“Insurers are increasingly using computer models to assess the risk of fires for individual homes and deciding that homes in some areas face too high a risk,” Jones said in the press release issued on Jan. 4. “In the wake of last year’s wildfires, we may see more areas of the state where insurers decline to write. The Legislature has given insurers broad latitude to decide whether and where to write fire insurance, therefore we are recommending new laws to improve fire insurance availability.”
Insurance companies do not have to report to the California Department of Insurance when they do not renew policies, but they do have to submit rate increases for approval. The insurance commissioner will typically push back on these rates, forcing the insurance company to reevaluate. The commissioner has to walk a line between making sure the rate is fair but adequate.
The one area that the Department of Insurance does not have authority is on underwriting; it cannot tell an insurance company when and where to write insurance. When an insurance company pulls out of an area, the insurance commissioner has no authority to make them go back.
If a home is in a high-risk fire area and cannot find fire insurance that will cover their residence, Californians have an option to enroll in the California Fair Plan, which is what Kincaid refers to as the “canary of the coal mine.” This standalone fire insurance plan covers residents when other insurance companies will not. The Fair Plan only covers basic fire dwelling insurance, and does not cover burglary, liability or water damage. These additional types of insurance must be purchased through a different company.
“Don’t take it personally – it’s a business decision. You should make a business decision for yourself, as well: shop around, price the best deal. Make sure you’re getting the best coverage your money can buy; the most coverage your money can buy,” Kincaid recommended when shopping for fire, as well as home and auto insurance.
The Department of Insurance has recently introduced new legislation to help protect Californians in the event of a fire disaster.
“Californians whose homes have been destroyed totally or partially by wildfires should not get hung up in insurer red tape when trying to put their lives back together,” Jones said. “Our Wildfire Survivors Insurance Recovery legislative package strengthens the laws protecting wildfire survivors in the insurance claims process and will improve their chances for recovery.”
A report was released regarding fire insurance and cost in many areas in the state of California. The report details why changes in law are necessary in order to handle the increasingly common issue of wildfire disasters. The report was in response to the rampage of wildfires California experienced in late 2017.
Some of the protections include Senate Bill 824, chapter 618, which is the Wildfire Safety and Recovery Act, approved on Sept 21, 2018. The bill is meant to help protect homeowners from the risk of losing their insurance due to an increase in wildfire risk.
Additionally, other senate and assembly bills were unveiled at the end of 2017 and into 2018 that strive to help with crucial issues wildfire survivors experience, including being under-insured, consumer protection after a disaster, rebuilding homes and recovery.
Kincaid advises individuals to examine several important aspects of their insurance policies, such as if the amount of the policy will be enough to rebuild in certain areas. Depending on the region, it can be difficult to find contractors who are willing to rebuild. She said that residents rebuilding in the Redding area are experiencing a difficult time finding contractors. She recommends analyzing the cost by square foot.
“If you’re looking at wildfire risk, you have to think about the fact that if many, many houses burn down, it’s going to create demand surge. The contractors are harder to find, and they charge more,” Ruiz said. “What we advise people to do in high-risk areas is to shop and compare. One of the easier ways to do this is to go through a local insurance broker.”
A broker, Ruiz said, is someone who will represent several companies.
“If they are local, they will know which companies are actually writing insurance in the high risk areas. It saves you some time, and you can compare coverages as well as premiums. It’s not always about price – it’s about coverage,” she said.