By Marisa Endicott, THE PRESS DEMOCRAT
Last year, JoAnna Price of Napa returned from vacation to a letter stating that her insurer, Safeco, would not be renewing her home insurance because of heightened wildfire risk.
“I would say we were shocked to say the least,” she said. “‘Welcome home, you no longer have insurance.'”
She’d been insured through the company for eight years since buying her Napa home without issues or filing any claims. Suddenly, she had two months to find a new carrier.
“No alternatives, no ‘let us help you out,’ no nothing,” she told me. “So, we started scrambling.”
In the end, she was able to find alternative coverage through State Farm Insurance, but the situation left her bewildered. While the threat of wildfire is a real risk in the North Bay, she said her stucco home with a tile roof is in a suburban neighborhood in city limits that had not previously been considered within a high fire risk area.
“There wasn’t any logic to it,” Price said. “Why now? I want to understand that.”
Price is not alone.
As a new climate reality sets in, complete with more frequent and intense wildfires, sea level rise and unpredictable storms, people living in higher fire risk areas in particular are increasingly facing sudden cancellation, the refusal of residential insurance coverage or unmanageable premium costs.
These decisions, which can feel arbitrary or abrupt, have left many Californians — particularly those in Northern California — in a tight spot, especially because insurance is required for a mortgage.
California’s devastating and deadly 2017 and 2018 wildfire seasons set off what some people see as an impending insurance crisis, as companies, confronted with the reality of massive policy payouts, have started to pull back to limit exposure, leaving residents in the lurch.
Wildfires that tore through the North Bay in 2017 leveled communities and are considered some of the state’s most destructive. The next year, the 2018 Camp Fire, California’s deadliest, ravaged Butte County.
While those years stood out, the 2020 Zogg Fire in Shasta and Tehama counties killed four people and destroyed hundreds of buildings and the state’s 2021 fire season multiple blazes ranking in the top 20 largest wildfires on record by acreage.
“Prior to those two big fire years, homeowners insurance had been relatively stable for a very long period of time, and then, all of a sudden, it wasn’t,” said Rex Frazier, president of the Personal Insurance Federation of California, a nonprofit insurer trade association.
Frazier said the two fire seasons wiped out 24 years of underwriting profits industrywide.
“It was just a massive shock to the system that such a large amount of money could be paid out in such a short period, and with a rate structure that was really based on an underlying assumption that homeowners’ insurance is kind of this boring, stable thing.”
According to a November 2022 report, nonrenewal insurance rates more than doubled in 2019 in ZIP codes with the highest wildfire risk.
The latest data from the California Department of Insurance shows that insurance companies non-renewed 241,662 residential policies in 2021. Though that includes nonrenewal for any reason, not just wildfire risk, such nonrenewal rates have trended upward since 2015.
Since 2018, enrollment in the FAIR Plan, Californians’ property insurer of last resort, has increased from 126,709 to 272,846. It is a less than ideal option with high rates and restricted coverage limits despite some recent reforms, and many warn its continued expansion is unsustainable.
As insurance giants have announced plans to scale back in California, policymakers at the state and federal level have taken up the issue.
To protect consumers in the short-term, the California legislature passed SB 824, which bars insurance companies from canceling or refusing to renew policies in certain ZIP codes due to being in wildfire areas for one year after a state of emergency was declared.
More recently and expansively, the Department of Insurance finalized a first-in-the-nation “wildfire safety regulation” in October 2022 that will require insurance companies to offer discounts to homeowners and businesses who take appropriate steps to mitigate fire risks on their properties, for instance, hardening homes.
Importantly, under the new rule, policyholders are entitled to know their assigned “wildfire risk score” and can appeal that score as the basis for refusing renewal or provision of coverage.
Still, to take advantage, residents must be able to afford wildfire mitigation projects on their properties, which can cost thousands of dollars and be out of reach. There have been some state and federal funding opportunities, but many have called for more support, from the government, but also the insurance industry.
Advocates have pointed out insurers, which often have ties to charitable foundations, would benefit from more climate resilient homes and have responsibility in that they’ve long underwritten fossil fuel projects that drive climate change.
Companies had until mid-April to submit their plans for cooperating with the regulation, which are now under review and will take a minimum of 45 days before going into effect. Then, consumers can shop around for the best discounts, demand transparency into fire risk calculations and appeal company decisions.
It’s a solid step in the right direction that puts California ahead of the curve, according to Carmen Balber, executive director of Consumer Watchdog, a consumer advocacy group.
However, “the big gap in this regulation is its failure to require insurers to consider mitigation when they decide whether or not to sell to you at all,” she told me.
The concern is that insurers can avoid covering risky areas or offering wildfire prevention discounts by refusing to offer policies all together.
“Unfortunately, insurers are free to redline entire neighborhoods, ZIP codes, census tracts, without considering mitigation via homeowner or community,” Balber said. “That was the big loophole in this rule and the one that threatens to swallow its progress down the road.”
That’s a no-go for insurers.
“How does that make sense,” Frazier said. “If the state wants to control price, that’s a perfectly fine opinion, but then to also control eligibility, that’s a recipe for bankruptcy.”
For its part, the insurance industry maintains that reduced availability of coverage results from restrictions on companies’ ability to raise rates to match increasing risk and cost of doing business.
“It doesn’t matter what an individual has done when a company doesn’t have enough statewide premium to be able to afford all its business,” Frazier said. “If you can’t price to the risk, then something has to give, and in this case, it’s availability.”
In effect, factors beyond an individual homeowners’ control go into whether they might be reinsured or offered insurance in the first place. For instance, to avoid risk concentration where a wildfire might occur, insurers are wary of providing too many policies in one place.
Anti-discrimination rules bar arbitrary disqualification of one similarly situated home over another, but companies have other options like refusing service to an entire ZIP code or rejecting homes that are within a certain distance from brush.
That was the case for Robbin Montero, who has surprised to learn Nationwide, her insurance carrier of 30-plus years who’d insured her home in Santa Rosa’s Bennett Valley, would not insure her new home four miles away in Rincon Valley.
The reason given? The area around the new house was “too brushy,” she said.
Though unexpected, Montero, as a retired business owner, said she understands companies’ need to maintain a profit and was ultimately able to find cheaper coverage through Travelers.
The industry’s two main proposals to ease its burden include California aligning with other states to allow insurance companies to pass through rising costs of reinsurance, whereby an insurer transfers all or part of the financial risk it assumes by selling a portion of its liability to other insurers around the world.
Secondly, companies want to be able to base prices, in part, on risk modeling that incorporates climate change projections rather than the current process of looking at the average losses a company has paid out over the last two decades.
“Do we want an incremental change in the regular market that’s going to be higher, but you can write more insurance, or do you just want to force people into the FAIR Plan,” Frazier said.
But, consumer advocates say these changes would undermine California’s 1988 landmark Proposition 103 that established state approval for insurer rate increases and transparency into rate-making in the wake of the 1980s liability insurance crisis. That’s because reinsurance rates and third-party companies’ modeling technology, they contend, would likely be beyond California’s regulatory reach.
“It is the insurance industry taking advantage of a real climate crisis to use it as a springboard to get the changes in the law that they’ve always wanted,” Balber told me, adding that these allowances haven’t seemed to benefit consumers elsewhere.
“They’re saying, ‘we can’t sell unless we get these things,’ but they really haven’t worked to protect people in other states.”
The stalemate debate is a reflection of California reckoning with a climate crisis that increasingly restricts where communities can safely live, a housing crisis that has led to further development of fire-prone areas, and the ultimate question of who — state, industry or residents — will shoulder the burden.