The Wildfires Will Have Long Term Effects on Homeowners Insurance

Tips for Homeowners in Fire Hazard Areas

For the past several years we have experienced record-breaking wildfires across California. The destruction of communities, precious habitats, and loss of life is devastating. For homeowners and buyers in or near fire zones, the dangers may linger long after the fires are out - Insurance.

Facing unprecedented and escalating losses, many insurance carriers will be raising premiums dramatically, eliminating coverage, or even canceling policies. Some carriers are pulling out of at-risk markets altogether. And while Places like Los Gatos, La Honda, and Woodside top discussions of fire hazard, there are plenty of more central Peninsula neighborhoods that fall within designated fire zones. (E. G. some of the canyon areas of Belmont or San Carlos.)

Just as the fires alter the landscapes that they consume, we can expect to see continuing changes in the insurance landscape going forward. Prices and non-renewals are increasing rapidly, and more and more homeowners are being forced to access insurance through alternative carriers such as Lloyds of London whose rates can be 5X or more of the traditional carriers.

Lee Neidle, Senior Vice President of USI Insurance Services, says it's not just premiums and availability that are changing. "Insurers will have a lot more carve-outs on coverage, including limitations or exclusions on smoke damage, landscaping, and additional structures." A home might not burn down, but could be left uninhabitable by extensive smoke damage. "We'll also certainly see larger deductions on fire coverage," says Neidle.

So what should you do if you own a home or are thinking of buying a home in a fire hazard area? For buyers, as soon as you find a house you like, contact your insurance agent immediately. Make sure you know what your options are, how much coverage will cost, what coverage it includes, or if it's available at all. You don't want to wait until a week before closing to find out that you can't get fire coverage on your new home.

Know your rights. If you get a notice of non-renewal contact your insurance carrier right away. You may be able to maintain your coverage if you have taken steps to harden your property against fire. (Which if you live in a fire zone you should be doing anyway.) There is currently a moratorium against cancellations in California, however it expires in December of this year. New legislation is being debated in Sacramento but as of this writing, nothing is certain as to the outcome.

If you can't obtain coverage with a traditional ("admitted") carrier, your agent will access what's known as the surplus lines. These carriers have more flexibility in their offerings but are likely quite a bit more expensive. (E.g. Lloyds of London.) If you're out of options the California FAIR plan is coverage of last resort. Fair plan policies only cover certain fire damage and not other common losses covered in traditional homeowners' policies. (I.e. theft, water damage, liability.) So you will still need what's called a Difference In Conditions policy.

Finally, make sure you are not underinsured. You want a policy that will cover the cost to rebuild your home in compliance with current building codes. If you have a loan your lender will require coverage for replacement value, not just actual cash/depreciated value.

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Climate change, budget cuts for forest management, and continued development in remote areas means wildfires will be a growing threat to our homes and our habitats. Too often insurance has been an afterthought in the excitement of buying a new home. Now it needs to be front and center with getting preapproved for a mortgage.