Right now, the availability of fire insurance is a crisis in California. However, when you consider the numbers of states now impacted by wildfire, the issue — if you’ll pardon the pun — will likely spread like wildfire.
First California. California Insurance Commissioner Dave Jones wants the Legislature to address the issue of the dwindling affordability and access to homeowners insurance in some areas of the state.
Here’s the problem. More than 3.6 million Californians live in the wildland-urban interface. Of those over one million are considered high risk or very high risk. A couple of decades of heavy losses by insurers in those areas have resulted in insurance changes.
In discussing the need for continued fire insurance in those areas, Jones said, “Californians are facing more severe, more unpredictable and more frequent wildfires. Add to the equation, increasing development in areas more vulnerable to fire and you can see why wildfires are now an everyday threat to life and property for Californians.”
Wildfires have become a nightmare for consumers, too. Late last year wildfire in the North Bay destroyed or damaged 21,000 homes and killed 44 people. It destroyed many of the state’s vaunted wineries.
The Thomas Fire in December — which is still not totally contained — destroyed thousands of homes and killed two people. It is the largest wildfire and most destructive wildfire in history.
Jones said since those fires his department has received an increasing number of complaints from policyholders, consumer groups, public officials and others about the availability of homeowners insurance in those areas and others facing wildfire danger. Many say they can get the insurance but it’s unaffordable.
Between 2010 and 2016 the California Department of Insurance has seen an increase of dropped insurance complaints of 250%. In the 24 counties where wildfire is the greatest danger, the numbers cancelled jumped 15% between 2015 and 2016.
Six of those counties saw a 50% increase in the number of policies dropped.
“Insurers are increasingly using computer models to assess the risk of fires for individual homes and deciding that homes in some areas face too high a risk. In the wake of last year's wildfires, we may see more areas of the state where insurers decline to write. The Legislature has given insurers broad latitude to decide whether and where to write fire insurance, therefore we are recommending new laws to improve fire insurance availability,” Jones said.
Thus, the commissioner has ordered the Department of Insurance to do a deep analysis of affordability and availability. Included in the analysis is a look at two major fire-risk models. Jones is suggesting the Legislature make changes like preventing companies from cancelling policies or increasing rates for homeowners who take specific steps to reduce wildfire exposure. He also wants to see the state approve the models insurance uses to predict wildfire risk and let homeowners appeal the risk calculations if they are unfavorable.
Julie Rochman of the insurance industry funded Insurance Institute for Business and Home Safety said the number of acres consumed by wildfire since 2000 has doubled. “We used to have in this country a wildfire season, and now we have wildfire risk in multiple states all year long,” she said.
The institute and Rochman predict other states will soon be seeing premiums rise or insurance be harder to get.
The issue has been brewing for a long time but people are just now starting to notice. Alice Hill was a senior advisor to President Obama and is now a research fellow at the Hoover Institution. She said those thinking about building in wilderness areas need to also factor in the high cost of protection “When we see insurers pulling back from markets, it’s because the risk is increasing. If those risks are getting too high, it’s a strong signal that we need to change our ways,” she said.
Good point Jones said. He wants to see changes in local planning and regulations that keep people out of the more dangerous areas. Higher rates — the commissioner said — is a “crude tool” to accomplish that task.
“By the time the insurance price signal is being sent, the homes are built, the businesses are built and people are moving in. If you wait and try to rely on insurance as a way of getting better decisions made, it’s too late,” Jones said.
Rochman said ironically those higher insurance prices — if they come about — will produce government assistance that is even more generous than it is now in the California Department of Insurance and elsewhere. It — in a way — subsidizes the desire of people to live where they want despite the risk.
“We’re going to continue to shovel millions and billions of dollars in disaster recovery out the door. We’re not a country that likes brutal honesty,” she said.
Whether that shoveling continues or not, the insurance industry isn’t likely to just blindly say yes to Jones’ proposals or those of others in other states. Rex Frazier of the Personal Insurance Federation of California said his association and others will resist any changes that make it harder to sell policies that don’t reflect true risk. If the Legislature in California does that then it will require insurers to charge higher homeowner rates in other parts of the state.
“Of course, people who choose to live in the forest and local governments that continue to approve development in the forest would like less fire-prone areas to subsidize them. But that just ‘solves’ one problem by creating another,” Frazier said.
Headwaters Economics is part of the Montana-based Community Planning Assistance for Wildfire program. Research by the group says 60% of the new homes built in the U.S. since 1990 have been built in the Wildland-Urban Interface. With 84% of the available Wildland-Urban Interface still undeveloped, things will likely get worse before it gets better.
The homes that are in the interface now are being hit hard by wildfire. This has increased the pressure on the U.S. Forest Service who spent 50% of its budget — up from 13% in 1995 and that is even more today — on firefighting. With 84% still undeveloped, the pressure is going to increase on the Forest Service and other firefighting organizations.
And what that really means is the taxpayer is going to fit more of the bill says Ray Rasker of Headwaters Economics.
“The fundamental challenge with wildfire is there’s a real disconnect, because the land use decision is local but when things go bad, the consequence of that decision is borne by the federal taxpayer, and sometimes in terms of firefighter lives,” Rasker said.
On average, the federal government now spends $3 billion a year on fire suppression.
Headwaters researcher Kelly Pohl said fire costs communities as well as government. “Communities bear long-term costs from wildfires over years because of lost business revenue, depreciating property value, and the long-term mental health consequences of living through a disaster like that,” she said.
It’s important that something be done and done soon and the place to start is local communities. States, counties and local communities set land use regulations so Pohl’s organization is working with them to enact change. “One of the strategies that we’re working with communities all over the country right now is developing land use regulations on how to reduce risk,” Pohl noted.
A number of things are being done:
• Reducing risk is to require fire-resistant building materials like concrete, stone, glass and brick
• Another strategy is to keep buildings from being built on slopes because fire moves faster on a slope than it does on flatter ground
• Houses need to be a minimum distance apart and regulations need to be set up and enforced to keep them farther apart
• Vegetation around homes needs to be the kind that does not catch fire easily
Source links: PropertyCasualty360.com, New Republic, Next City