WEDNESDAY, SEPTEMBER 30, 2020
As much of the focus this year have been on the Covid-19 pandemic, we also are still facing significant challenges in the pricing and availability of property insurance in all California wildfire zones. Whether it is homeowners, renters, residential rentals, commercial property or business owner protection you are seeking, the quantity of insurance companies available and quality of coverage being offered are certainly varied. While some changes have occurred by order of the California Department of Insurance the underlying woes of ridge residents with losing coverage, and increasing rates remains.
While 2019 was a comparatively mild wildfire season in California the $25 billion in losses caused from 2017-2018 led to a significant increase in reinsurance costs. Reinsurance is where the well-known insurance companies we know go to offload some of the risks of a major catastrophe. Historically, reinsurance companies did not underwrite heavily for wildfire being a catastrophe, focusing rather on hurricanes, earthquakes and tornados. Now wildfire is highly scrutinized in underwriting and the cost of this reinsurance, which is not regulated, has increased significantly. This cost is the primary reason many companies have had to non-renew existing customers.
The California Fair Access to Insurance Requirements (“FAIR”) Plan is an insurance pool established to assure the availability of basic property insurance to people who own insurable property in the State of California and who, beyond their control, have been unable to obtain insurance in the voluntary insurance market. The California FAIR Plan has added 22,000 homeowners in a recent 12-month period. Additionally, they have changed the underwriting guidelines to allow for a maximum limit of $3 million in total coverage written under the Dwelling Property Policy. Commercial property is now available up to $3 million for the structure and $1.5 million for all other coverages. The coverage provided by the FAIR Plan is basic fire coverage only and should be supplemented with a Difference in Conditions policy covering losses for items such as water damage, theft and liability.
To those that are still in the claim process from the Camp Fire, Commissioner Lara released this notice on April 3,2020:
In addition, the Department has received complaints from consumers and local and state officials that certain residential property insurance companies are insisting that insureds (who suffered losses in the November 2018 wildfires) must continue to repair and rebuild their homes during the COVID-19 crisis to obtain full replacement cost and Additional Living Expense (ALE) benefits. This Notice reminds all insurance companies that new laws that went into effect before the November 2018 wildfires mandate that insurers provide no less than 36 months, plus additional 6 month extensions for “good cause,” for insureds to collect full replacement cost and ALE for delays in the reconstruction process that are the result of circumstances beyond the control of the insured. Under the referenced chaptered legislation, circumstances beyond the control of the insured include, but are not limited to, unavoidable construction permit delays, lack of necessary construction materials, and lack of available contractors to perform the necessary work. Commissioner Lara and the California Department of Insurance have determined that the current COVID-19 pandemic is a circumstance beyond the control of the insured, thereby constituting “good cause” under the applicable laws.
As an insurance professional, I have never witnessed this much uncertainty in the industry. Undoubtedly we will continue to face challenges obtaining affordable property insurance in wildfire hazard areas. I do however remain optimistic and hopeful that a positive outcome is on the horizon. My suggestion is if you are searching for property insurance start looking as early as possible and utilize both direct writing and independent insurance agencies to get access to as many insurance companies as possible.