The Effect of California’s 2018 Deadly Fires on Insurance Companies

Across California, the wildfires were beyond devastating last year. With the Camp Fire in Northern California and the Woolsey Fire in Southern California, it felt like the entire state was burning.  

More than 7,000 residential and commercial structures were destroyed thanks to heightened wildfire activity throughout the state. As a result, it is becoming more difficult than ever for California homeowners to obtain and keep fire insurance.

The California Department of Insurance has received nearly forty thousand claims related to the Camp and Woosley/Hill fires with total incurred losses exceeding approximately nine billion dollars, as of last December.

As California wildfires grew larger and more intense last year, most insurance companies were not renewing policies for customers who live in areas that were too risky to cover. The state estimates that over one million homes in California are at high risk for wildfires.  

A California Department of Insurance report learned that the number of homeowners in the wildland urban interface, who spoke out about getting dropped by their plans has tripled from from years 2010-2016. These complaints about increased premiums have risen two hundred seventeen percent.

The state’s most vulnerable homes are not located in cities. They are instead found in areas defined as “wildlife-urban interface.” These homes are built just close enough to woodlands so that a spark from a tree can set a whole town on fire. As more people continue to live in and move to these disaster-prone areas, the amount of property at risk and the subsequent cost will also increase.  

Insurance companies do not have the same recourse and some have been choosing to not renew policies for customers who live in areas that are too risky to cover.  A standard homeowners insurance policy will include coverage for fires. But if you live in what is classified as a high risk area, you will either need to pay more for coverage or obtain insurance through surplus lines. Surplus lines are policies that protect against financial risk that regular insurance companies won’t take on and are not required to follow same state regulations.

To protect homeowners from high rate increases, the state requires insurers to justify increases with reams of data showing that their cost of paying for claims is rising. And after a catastrophic year of natural disasters, insurers are not allowed to increase rates right away. They instead must phase in the increase over twenty years.  

Moving forward, insurance companies will be more creative with their policies. As a result, more homeowners need to purchase additional coverage to make sure they are protected, or move out of problem areas.

There are millions of California homeowners who need to take the right steps to protect themselves and their homes in the event of a similar tragedy.

It is important to have the right insurance broker working with you, who can walk you through these more nuanced provisions and find the right plan for you. This will make a big difference when something catastrophic happens.   

Do you have a question about protecting your home from wildfires in the future? Click here to contact Partners Direct Insurance today!

Courtesy of Cuselleration