After two disastrous fire seasons, California officials have been besieged by homeowners in fire-prone areas complaining that their insurance premiums are skyrocketing or their plans are suddenly being dropped.
Now regulators finally have a better idea of just how bad the problem is.
The number of rural homeowners dropped by insurance companies topped 340,000 in just four years, according to figures released Tuesday by Insurance Commissioner Ricardo Lara’s staff.
The non-renewals increased by 6 percent last year, translating into 88,187 homeowners forced to find replacement coverage in 2018 alone — often at much higher prices. By comparison, insurers dropped only 79,383 homeowners last year in the far more populous urban areas.
In areas affected by the 2015 and 2017 fires, homeowners fared even worse: Non-renewals jumped by almost 10 percent last year in those zip codes, the Department of Insurance said.
Insurance officials said the numbers are striking because they don’t fully reflect the impact of last year’s big fires, including the worst-ever Camp Fire in Paradise, which killed 86 people in November and destroyed almost 90 percent of the homes in Paradise. Many of the non-renewals following the 2018 fires haven’t occurred until this year because insurers generally have to wait until the homeowners’ policies are due to expire.
“I have heard from many local communities about how not being able to obtain insurance can create a domino effect for the local economy, affecting home sales and property taxes,” Lara said in a prepared statement. “This data should be a wake-up call for state and local policymakers that without action to reduce the risk from extreme wildfires and preserve the insurance market we could see communities unraveling.”
One of the most dramatic increases in non-renewals came in Nevada County, in the Sierra Nevada foothills, where fire risks are among the most severe in the state. A total of 1,071 homeowners were dropped by their carriers last year, a 38 percent jump from the year before.
Under state law, insurers aren’t required to report data on non-renewals. Lara’s office asked carriers to submit their data earlier this year, and the data released Tuesday represents the compilation of those numbers.
Getting dropped by an insurer in fire country can be catastrophic for homeowners. Often they can’t find replacement coverage from traditional carriers and have to buy insurance from one of two alternative sources: a “surplus lines” company whose rates aren’t regulated by the state, or the California FAIR Plan, the state’s “insurer of last resort.” A total of 21,848 Californians bought FAIR Plans for the first time last year.
Either way, their premiums will likely double or triple, adding thousands of dollars of expense to household budgets in parts of the state where incomes tend to be low. A task force advising Gov. Gavin Newsom on wildfire issues reported in June that coverage typically costs 50 percent more in high-risk zones than other parts of the state.
However, even with the flurry of non-renewals in recent years, roughly 98 percent of Californians get coverage from traditional carriers.
“Insurers remain committed to covering homes in rural and urban zones, despite paying out more than $26 billion in claims from the 2017 and 2018 wildfires,” said the American Property Casualty Insurance Association and the Personal Insurance Federation of California, two lobbying groups, in a prepared statement responding to the new data.
Consumers do have some cushion against a quick non-renewal. State law says insurers must wait at least a year before dropping someone who lives in or near an area where a big fire occurred. Another law gives a two-year reprieve to homeowners who suffered a total loss to their property from a wildfire.
Lara told The Sacramento Bee last month that he’s working with the Legislature on additional reforms, including a proposal to require insurers to guarantee renewals if homeowners “harden” their homes to reduce risks. He also wants to see state insurance subsidies for low-income rural Californians.
“We need to take pro-active steps to protect our consumers,” he said.
Such efforts seems to be getting traction in the legislature, according to State Sen. Jim Nielsen, R-Gerber. He says he’s optimistic a fire insurance reform bill will pass this year that includes improving the FAIR plan and addressing insurance companies bailing on fire coverage.
“If they want to be in California to do business, major insurers cannot just cherry pick and cut what they deem risky and continue to do business in the more lucrative and less vulnerable areas,” said Nielsen, who represents Paradise.
Such legislative efforts can’t come soon enough for El Dorado County Supervisor Brian Veerkamp, a former firefighter. Veerkamp met recently with Lara in El Dorado County, one of the commissioner’s stops on a seven-county tour of the foothills and Santa Barbara to learn more from residents about the fire insurance woes.
“They thought through it with earthquake insurance. They thought through it with flood insurance. Why isn’t there something else (for fire)? I don’t have those answers yet because we’re trying to get the help of our legislature. ... They’re engaged in this but there’s no answers coming back yet,” Veerkamp said.
Insurers said they’ve had little choice but to protect themselves after getting hit with claims totaling $24 billion the past two years. For every $1 they collected in premiums from homeowners last year, they paid $1.70 in claims, according to Department of Insurance data.
The spike in premiums and non-renewals has spilled over to the rural real estate market. Home buyers are canceling purchases, stifling the flow of wealthy retirees who move to forested areas and help prop up struggling rural economies.
The prospect of potentially $10,000 or more in annual insurance premiums worries Judy Isaman, an Auburn-area homeowner who’s with the activist group Protect Rural Placer, because it means she and her neighbors will be less likely to sell their homes.
“Everybody who has these rural properties, we see our properties aren’t worth anything any more,” she said. “Because to sell our home it’s not going to happen if somebody has to have financing .... It’s going to stop any mortgage lenders. If you’re selling to someone with cash, they’re going to think twice about having to pay $12,000 for homeowner’s insurance.”