As the number and severity of wildfires increase, so does the cost to homeowners—and their insurance companies. California Insurance Commissioner Ricardo Lara reported more than $11.4 billion in insured losses from last November’s fires as of January 2019.
This uptick in fires is making it difficult for homeowners to secure insurance coverage at reasonable rates.
“Right now, the market for a homeowners’ policy in the Malibu area—it’s very tough,” Rene Williams, a Farmers Insurance Agency owner, said. She added that insurance company rate increases were apparent—or at least inevitable—all across the board, including for the California FAIR Plan, which serves as a “last resort” for homeowners looking for coverage, according to its website.
The FAIR Plan, which already increased rates last year, Williams recalled, hiked prices by 20.1 percent as of April 1. According to a presentation shared online by the California Department of Insurance, the rate increase does not apply to all homeowners under the plan; a score determined by a number of factors including age of home, protection class and type of roof—to name a few—results in a wildfire model score. Those with lower scores will see a rate decrease between 10-30 percent while those with higher scores may see as much as a 69 percent increase.
Moreover, Williams explained, FAIR Plan coverage is not enough to account for the value of many homes in Malibu—the plan only covers a property up to $1.5 million.
“So, what I’m seeing is that some of the carriers are staying in the market, [but] their policies are so high, they’re difficult to afford,” Williams said.
In one case, a client of hers was paying a premium of $7,000 last year. This year, the same carrier offered a rate of $19,000 to that client.
This is possible because there are two types of insurance carriers: admitted and non-admitted. Admitted carriers are the big-name ones, such as Farmers Insurance, Allstate, AIG and AAA. These carriers are all regulated by the California Department of Insurance. Any rate change they enact has to be brought before the department and can take up to a year or two to be approved.
Non admitted carriers—also known as excess and surplus lines insurers—include Lexington Insurance Company, Lloyd’s of London and North Star Mutual Insurance Company. As Nationwide—an admitted carrier—describes on its website, these insurers are part of “a specialty market that insures things standard carriers won’t cover.”
A non admitted carrier can provide services by affiliating with an admitted carrier. For example, Lexington is a non-admitted carrier of AIG.
“They don’t have to necessarily submit their rate structure,” Williams explained, and later added: “The State of California is not going to step in.”
In Malibu, she said, dealing with insurance has become difficult in the last four to five months—right after the Woolsey Fire hit Malibu. Insurance companies began issuing non-renewals to customers, possibly given that Malibu is located in the wildland-urban interface (WUI).
WUI is defined by the Ecological Society of America as an area where residential homes “meet or intermingle with undeveloped wildland vegetation” such as forests. For example, Malibu is bordered by the Santa Monica Mountains.
According to a report from the California Department of Insurance dated December 2017, “Over the past two decades, many wildfires have caused significant damage in the wildland-urban interface [WUI]. Based on a 2010 USDA report, there are an estimated 3.6 million California homes in the WUI. Also, based on the primary wildfire-risk models and CalFire data, more than one million homes in the WUI are in a high or very high risk-of-fire area.”