Setting Policy With Policies; Allstate’s Move To Limit California Exposure Jolts Debate On Land Use In Danger Zones
The Press Enterprise (Riverside, CA)
Homeowner Mel Goldfarb is expecting a visit any day from an Allstate Insurance representative to inspect his property in the fire-prone community of Idyllwild.
Goldfarb, who turned to Allstate three years ago after another carrier dropped him over concerns about fire dangers, is worried the inspector will find some way to exclude him from future coverage with Allstate.
“I think if they can find an excuse to deny my renewal they will,” said Goldfarb, who is among the 900,000 homeowners’ policies Allstate underwrites statewide.
As of July 1, Allstate stopped writing new homeowners policies in California. The firm’s current policies will remain in force, spokesman Rich Halberg said.
The move underscores the company’s concerns about the regularity of catastrophic disasters — including wildfires — in California.
Although it may mean fewer insurance options for Inland residents, the decision comes as questions mount about the wisdom of allowing development in the state’s most imperiled places and as Riverside County supervisors contemplate restricting development in fire-hazard zones.
Halberg said Allstate isn’t interested in dictating land-use planning, but Riverside County Fire Chief John Hawkins said property insurers have a place in the debate, whether they like it or not.
“Anything the insurance company does with a dollar bill will have an effect,” said Hawkins, who also is a Cal Fire unit chief.
The push to control development in places inherently prone to burn was rekindled following the massive firestorms of 2003. It was sparked again last fall in the Esperanza Fire when five U.S. Forest Service firefighters were killed while trying to save a vacant Twin Pines house from 100-foot flames.
FIREFIGHTING COSTS SOAR
Several government reports have attributed skyrocketing state and federal firefighting costs directly to the proliferation of homes in areas in or against fire-prone areas.
In Allstate‘s case, Halberg said the decision was made to quit writing new homeowners policies after the threat of disasters in California proved too great and threatened to undermine the company’s obligations to its current policyholders.
“California is a disaster-prone state,” Halberg said. “We decided to take the prudent step now.”
Carmen Balber, consumer advocate for the Foundation for Taxpayer and Consumer Rights in Santa Monica, blasted Allstate‘s decision.
While the marketplace might not feel an immediate fallout, Balber said, large insurers such as Allstate are making money “hand over fist,” with the top insurers paying out a maximum of 40 cents per dollar on claims.
Insurers collected almost $6.6 billion in homeowners policy premiums last year in California and paid out about $2.1 billion in claims, according to the California Department of Insurance.
Balber likened Allstate‘s move to leaving the casino table while the winnings are pouring in.
“It defeats the purpose of insurance, which is to spread the risk around so everyone is insured,” Balber said.
California’s Department of Insurance expected Allstate‘s move, a spokeswoman for Insurance Commissioner Steve Poizner said.
The company previously stopped writing homeowner policies in some East Coast markets because of hurricane and storm-loss concerns.
Other insurance companies already are moving in to fill the void left by Allstate, Poizner spokeswoman Jennifer Kerns said.
Poizner has challenged Allstate to prove that its homeowners multi-peril rates are not excessive. State law prohibits carriers from charging rates that are judged to be too high. An October hearing on the matter is expected.
FEINSTEIN WEIGHS IN
Sen. Dianne Feinstein, D-Calif., immediately condemned Allstate‘s decision to stop writing new homeowners policies in California,” saying the company needed to offer insurance “across the board.”
In a July 14 letter to Thomas Wilson, Allstate‘s president and CEO, Feinstein noted the company generated a record $5 billion profit last year.
Feinstein urged Allstate officials to reassess the decision.
“Allstate‘s actions could encourage other companies to follow suit and pull out of disaster-prone or storm-vulnerable areas — limiting exposure to risk in order to maximize profits, while consumers are left with dwindling options,” Feinstein wrote.
Not everyone sees a bleak future for homeowners in California.
An association of property insurers that is required by state law to provide fire insurance to otherwise uninsurable homeowners has seen a decline in its number of homeowners policies, said Mike Harris, spokesman for the Fair Access to Insurance Requirements, or California FAIR plan.
FAIR is made up of all property insurers in California who must participate in the program according to the amount of business they write in the state.
“We are in the business of getting smaller,” Harris said. “If we are not growing, that is an indicator that the marketplace is open and carriers are underwriting. When more business comes to us, that is not a sign of a healthy insurance place.”
ALLSTATE SIDESTEPS DEBATE
Allstate spokesman Halberg brushed off the suggestion that the insurance industry should take a larger role in the debate about local land-use policies by continuing to offer new policies in California, but refusing to insure the state’s most fire-threatened areas.
“We’re not going to dictate land-use policy to the state,” he said.
He said state law requires the company to offer new policies across the board, or none at all.
He said Allstate has worked with local communities in fire-hazard areas to educate homeowners on what they can do to stave off destruction of their homes in the event of a wildfire.
The company requires a 200-foot clearance around property in contrast to the 100-foot clearance required by state law.
Mike Mattoch, assistant vice president and senior legislative counsel of United Services Automobile Association western region government relations, recommended that all homeowners review their policies to make sure they meet all the conditions for coverage, such as brush clearance.
“Go out and take a picture of the cleared brush,” said Mattoch, whose company provides property and casualty insurance to more than 5.5 million members of the military and their families.
“When you have a fire and these guys come out, they look for ways to deny your claim. That’s the adjuster’s job.”
Terry McHale, public policy director for CDF Firefighters, a state firefighters union, said he fears insurance coverage could become harder for Californians to get if the U.S. Forest Service decides not to provide structural protection. The Forest Service and Cal Fire have begun to review their roles and ways to make firefighters safer.
Forest Service officials have said the agency still wants to protect homes, but has not yet come up with a policy on how to do that and protect firefighters.
“The insurance companies are going to take into consideration homes built in high fire-risk areas and the fact that the Forest Service may not even respond,” McHale said. “It’s clear everyone is looking at this very closely. This is not going to go away.”
FIRES TO BE EXPECTED
For homeowners such as Goldfarb, who’s lived in his home in Idyllwild for 31 years, fires and the threat of fires have become something to be expected and guarded against.
About 10 years ago, most of the community was required to evacuate for days as the Bee Fire blazed its way up the mountains but eventually changed course.
Goldfarb said the dense forests that once surrounded his mountain home have been thinned by a bark-beetle infestation and by state and federal agencies determined to hinder the spread of a future blaze.
“Over the years prevention is becoming more and more important,” Goldfarb said.
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THE COST OF FIRE SUPPRESSION
Amount of state money spent or proposed to be spent on fire suppression in California:
YEAR — MONEY SPENT
96-97 = $475 million
06-07 = $869 million
-7-08 = $1.2 billion proposed
SOURCE: STATE LEGISLATIVE ANALYST’S OFFICE
FIRE DANGER
A 2005 survey of about 300 Inland homeowners by Allstate Insurance revealed many rated the risk of wildfire destruction to their homes as low despite the high fire risk that exists in many Riverside and San Bernardino county communities.
THE LEVEL OF WILDFIRE RISK IN THE COMMUNITY WHERE YOU OWN YOUR HOME IS:
High = 13.8%
Moderate = 23.4%
Low = 62.5%
Not sure = 0.3%
HOW LIKELY IS IT THAT YOUR HOME WILL BE DAMAGED BY WILDFIRE?
Very likely = 4.8%
Somewhat likely = 9.3%
Somewhat unlikely = 17.6%
Very unlikely = 65.1%
Impossible = 3.2%
WHO SHOULD BE RESPONSIBLE FOR CLEARING A DEFENSIBLE SPACE AROUND YOUR HOME?
Homeowners = 87%
Government = 3.8%
Fire Department 3.8%
Homeowners insurance company 3.4%
Others 3.4%
SOURCE: ALLSTATE INSURANCE
NOTES: Staff writer Jim Miller contributed to this report.
