Wildfires have become an increasingly common disaster in California. From 1996 to 2001, the number of wildfires in northern and central California increased fivefold due to climate change. The communities most at risk are those located in rural areas—over 85% of California's rural land is now in "high" or "very high" severity zones for wildfire danger.
The growing number of wildfires has become a devastating risk not only to rural homeowners, but to home insurance companies as well. Fire insurance is usually covered under general homeowners' insurance and is not a separate coverage, as flood insurance is. The increase of wildfires has resulted in growing premiums and deductibles for home insurance, and more shockingly the withdrawal of two leading home insurers from the California market. In the past year, State Farm, the largest insurer in California, and Allstate both announced they would no longer be accepting applications for homeowners' and renters' insurance in the state.
This may not be so surprising after the disastrous impact of wildfires in recent years. In 2018, the Camp Fire in Paradise destroyed nearly 19,000 properties costing insurers $16.5 billion. (Read more about the Camp Fire in Paradise here and here.) The year before, the wine country wildfires totaled over $3.3 billion in insured losses.
State Farm explained the reasons behind their decision were "historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market."
Considering the increased risk of wildfires in rural areas, this will undoubtedly have a disproportionate impact on homeowners in rural communities.
Allstate went further and made the decision to drop some policyholders living in high-risk fire zones. Beth Pratt, who lives near Yosemite National Park in Mariposa County, was dropped by Allstate after they had insured her for 31 years. She told NPR, "I get companies need to make money. I have no problem with that...But to just drop people—you know, it's scary. It leaves us feeling extremely vulnerable."
While state law does not require homeowners' insurance, most mortgages do require it as a condition of the loan. Smaller insurers are available for lower fire risk zones. For those living in high-risk areas that private insurers refuse to cover, the state offers the Fair Access to Insurance Requirements (FAIR) plan. The FAIR plan consists of insurers in the state willing to cover these areas but it comes at a high cost and for far less coverage than standard policies.
The hesitancy of insurers to provide policies for homes in high-risk areas is certain to affect new homeowners. According to the Insurance Information Institute, there are 1.2 million homes in California that are at risk of extreme wildfire, and there has been an influx of people moving into these fire-prone areas. While owning property may seem cheaper in rural areas, it is increasingly coming with a hefty added cost. A home insurance policy from an insurer such as State Farm for a million-dollar house in the Santa Cruz mountains would usually be around $150 a month, but with the FAIR plan, the rate is closer to $600 a month. This will be a barrier to many people looking to move to rural areas and buy property.
Pratt also told NPR, "The notion that, somehow, you know, we all built in this high-risk fire area—well, no, we didn't have major fires here every year." It is unclear what the solution for affordable home insurance is when wildfires and other natural disasters are becoming far too frequent. It seems truly unfair, however, for large insurance companies to be able to pull out when they are needed most.
You can read more about the disproportionate impact the lack of insurance has on rural communities here and here.
4 comments:
I feel sorry for the homeowners. It seems that everything is getting more expensive these days, but quadrupling your insurance is a huge hit to a family’s budget. With the recent news out of Florida about insurers leaving the state due to increased costs from hurricanes, it seems that a large portion of our nation might have to deal with this issue. It’s unfortunate that our society has let climate change reach this point, and I fear that the impacts will only worsen in the future.
The growing wildfire crisis in California is catastrophic and it is infuriating to see how large insurance companies are bailing when homeowners need them the most. Climate change is only going to get worse, and as we saw this summer, fires can happen anywhere—even the coasts of Hawaii. Pratt’s story is heart-wrenching but not unique, and it is appalling that people who have faithfully paid premiums for decades are abandoned by their insurance providers. While we cannot control the climate crisis overnight, insurance companies should be held accountable for their role in insuring against disasters. Insurance companies should not be able to just walk away from their responsibilities.
In college I took a class on natural disasters. Part of the take-away was that natural disasters don't necessarily hurt people. The largest causes of injury are poorly built buildings, mismanagement, or inadequate planning. California actually does fairly well on all of these metrics. Regardless, it shouldn't be an insurance company that decides who should live where. It leaves people already vulnerable to wildfire damage even more exposed. On the other hand, it is incredibly expensive to rebuild after a fire. What would make it less expensive for an insurance company or for an average person? More construction services? Better roads overall?
1. Great article, Isha! I'm not sure if you remember that in 2018 the Woolsey Fire burned through Agoura Hills, Calabasas, and Malibu. During the Woolsey fire half of the people in my neighborhood lost their homes. While we were fortunate that ours remained, we did lose our home insurance from State Farm. As California's climate becomes hotter and dryer, wildfires are expected to intensify. I wonder what is going to happen for these insurers in the future. Will companies emerge with the sole focus of insuring fire zones? Will only the "wealthy" and "elite" be able to live in these fire zones and pay higher premiums for this risky insurance? Will California's wealth inequality continue to grow? I think one of the best things we can do is do prescribed burns and cut down vegetation. Without fuel, even the hottest and driest days that produce a spark will not travel or turn into a massive wildfire if vegetation is properly maintained. I am very interested in wildfire law, and I am spending next summer working in a wildfire litigation group. I hope I will learn something about how we can fix this problem and prevent future disasters!
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