[REN #800] Homeownership: Fire Insurance Cancelled in California Fire Risk Areas

Picture of house in brush for Real Estate News for Investors Podcast Episode #780

 With the worst of the 2019 fire season still ahead of us because of Santa Ana winds, many California homeowners are scrambling to replace cancelled fire insurance policies. State officials say insurance companies have dropped more than 340,000 policies over the past four years because of the wildfire risk. Others are being offered insurance at skyrocketing rates.

The state insurance commissioner issued a press release a few weeks ago that says many homeowners in areas with a high wildfire risk are having a tough time finding insurance. (1) Ricardo Lara says, “We are seeing an increasing trend across California where people at risk of wildfires are being non-renewed by their insurers.”

Lara is relying on data about wildfires that took place before the end of 2018 so it doesn’t include policy drops related to the deadly Camp Fire in Paradise, the Carr fire in Redding, or the Woolsey/Hill fires in Thousand Oaks and Malibu. That data will accumulate as policies expire and insurers refuse to renew them.

Big Increase in Policy Non-Renewals

Current data on non-renewals for the earlier part of 2018 shows a 6% increase, or more than 88,000 non-renewals. Before that, fires in 2015 and 2017 resulted in a 10% increase in non-renewals.

Homeowner, Francis Mann-Craik, who lives in the midst of trees in Los Gatos, told the Mercury News that she and her neighbors received non-renewal notices from CSAA. She says, she has had insurance with the company for almost 20 years and feels betrayed. The Merc reports other neighborhoods in the San Francisco Bay Area are also getting hit by these notices, including the Berkeley Hills and the Santa Cruz Mountains. But this is happening all over California (2).

News Channel 3, out of Palm Springs, wrote about a couple in the town of Idyllwild who are facing an insurance dilemma. Neil and Donna Jenkins had been with Farmers for 20 years, and received a non-renewal notice after the Cranston Fire which burned more than 13,000 acres in that area. Neil said, “Quite frankly it’s close to immoral that they’d cancel it because the risk is higher. I mean really the risk has been there for the past 20 years.” (3)

Neil and Donna say they’ve done everything possible to reduce the fire risk, and much of the vegetation in the surrounding area has already burned. They say they’ve never filed a claim in the past, so the situation doesn’t make much sense.

Mann-Craik, in Los Gatos, also did what she could to reduce the risk, but her non-renewal letter says, her property doesn’t meet requirements related to vegetation, wind patterns, and accessibility. She says her effort to reduce the risk, “counts for zero with the insurance companies.”

It’s not easy to track which companies are dropping coverage and to what extent, but CSAA issued a statement in response to criticism, saying: “After careful review of our exposure, we are non-renewing a very small percentage of insurance policies with the highest risk.”

High Cost of Wildfires

Insurance companies are undeniably in a tough spot. Data firm CoreLogic says, wildfires burned more acres in California last year than any other state in the nation and the cost of insurance claims for fires in 2017 and 2018 added up to more than $26 billion. One reason that insurance companies don’t take into account individual homeowner efforts to reduce the risk is that fire mitigation has to be done throughout an area — not just by a few individuals.

Instead of cancelling policies, some companies are simply raising the premiums by multiple thousands of dollars. The Merc says, policies are tripling or even quadrupling from less than $3,000 a year to more than $9,000. So what do homeowners end up doing about insurance?

Tips from the Insurance Commissioner 

Commissioner Lara offered some advice to homeowners in Nevada County during a recent Town Hall meeting. (4) He said, insurance companies can’t drop you during your policy period, and they must have a reason to issue a non-renewal notice. If it’s due to a risk score, homeowners can appeal that. They can also check with different companies because each company has a different formula for determining risk, and there are some 50 insurance companies writing policies in California.

As a last-ditch effort, homeowners can get insurance from the California FAIR PLAN. It’s also expensive and not as comprehensive as regular insurance. Each state has a program like this where a pool of syndicated insurers share the responsibility of insuring these homes. The FAIR plan is designed as a last resort for homeowners who can’t get insurance from any other company.

Homeowners can find out more about their options by calling a HOTLINE number at the Commissioner’s office. There’s also an organization out of San Francisco called United Policyholders that will help homeowners with their insurance problems.

Links:

(1) State Insurance Commissioner Press Release

(2) Mercury News Article

(3) Chanel 3 News Report

(4) Fire Insurance Tips

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