“With climate change fueling California’s devastating fires, I am taking action to bring down the risk of losing your home in a wildfire and losing your insurance to a non-renewal. Californians need to know they can get and keep insurance they can afford before they buy, sell or build a home,” California Insurance Commissioner Ricardo Lara said in a news release.
As of Sept. 16, California wildfires had destroyed 4,200 structures and claimed 25 lives since mid-August, according to the California Department of Forestry and Fire Protection. In late August, Moody’s Investors Service estimated the recent California wildfires had caused $1.5 billion in insured losses, based on the destruction at that point of about 1,800 structures.
Citing his authority under state law and under Proposition 103, which governs how insurance rates are set in the state, Lara proposed four moves to shore up insurance coverage for homeowners in areas susceptible to wildfires:
1. Requiring that insurers seek “adequate and justifiable” rates for homeowners insurance
Among the key concerns of insurers in California is the ability to set rates that adequately compensate them for financial risks associated with wildfire claims, said Rex Frazier, president of the Personal Insurance Federation of California, a Sacramento-based trade group.
He said he appreciates that Lara wants to tackle the issue of “rate adequacy” for insurers, which he believes should be coupled with discussions about affordability for homeowners.
“We’ve been jumping up and down screaming about this for several years now,” he said.
Data supplied by Frazier shows home insurers’ California underwriting losses in 2017 and 2018 totaled $20 billion after comparatively small annual losses or profits from 1991 through 2016. He cited figures from the National Association of Insurance Commissioners indicating the average homeowners insurance premium in California increased only 7.3% from 2010 to 2017 (the most recent year for which data is available) versus 27.3% in hurricane-prone Louisiana and 61.4% in wildfire-prone Colorado.
2. Giving consumers clearer insights into their wildfire risk scores and what they can do to reduce them
Insurance companies frequently use wildfire risk scores to determine which homes they’ll cover and how much the premiums will be.
But these scores are based on wildfire risk in the area around a home, not for a specific home, meaning consumers might not be able to do much to lower their scores. Insurers buy these scores from several vendors and aren’t required to inform policyholders what their scores are. However, an insurance agent often will provide a policyholder’s score upon request.
3. Developing science-based standards that apply to all insurers regarding the “hardening” of homes.
“Hardening” refers to preparing a home to withstand a wildfire, such as building or rebuilding a roof with fire-resistant materials like metal or tile instead of wood or shingles.
“Homeowners who have done all the right things, hardening their homes and mitigating for fire danger, are still seeing their insurance cancelled or non-renewed,” state Assemblywoman Gonzalez, D-San Diego, said in February.
4. Setting up premium-reducing incentives for structures that have undergone hardening and risk mitigation
Wildfire mitigation includes measures like thinning out clusters of trees near a home and clearing out low-hanging branches.
“Our current reality of increasing insurance premiums and non-renewals hurts those who can least afford it, including working families and retirees on fixed incomes,” Lara said. “We can lower the insurance risk by incentivizing people to bring down the fire risk on their properties and in their communities with clear, science-based home-hardening standards.”
Last year, the California Department of Insurance reported that non-renewals of homeowners insurance initiated by insurance companies rose 6% from 2017 to 2018 in wildfire-prone areas of the state.
Lara scheduled a virtual hearing for Oct. 19, 2020, where consumers, first responders, insurance representatives and others will be invited to weigh in on insurance “availability and affordability” in the wake of California’s wildfire disasters. Lara’s office said the meeting will set in motion the process of introducing new state regulations surrounding wildfire insurance.
Amy Bach, executive director of San Francisco-based United Policyholders, a consumer advocacy group, said she applauds Lara “for convening this hearing and furthering our organization’s goal of restoring affordable home insurance by facilitating wildfire risk reduction.”
“Commissioner Lara can use his agency’s full authority and regulatory tools to compel insurers to recognize and reward mitigation measures that communities and individuals are taking,” Bach said.
Frazier, the trade group president, said the conversation set for Oct. 19 is “long overdue.” During the 2020 session of the California State Assembly, state lawmakers debated legislation aimed at tackling homeowners insurance and wildfire risk, but Frazier said those bills died.
“We’re glad to get this chance for a public debate of these important issues with our [insurance] regulator, rather than throwing rocks at each other in the legislature,” Frazier said. “We’re willing to talk about the hard things if everyone else is.”
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