California’s wildfire insurance crisis is easing. Why some carriers are returning

The companies eventually received approximately $ 11 billion from PG&E Corp. whose equipment was blamed for most of the major fires. But 2017-18 was still a financial disaster that drove businesses to flight.

In 2019 and 2020, property damage was much more bearable. The number of buildings destroyed has halved, despite California burning a record 4 million acres in 2020. The industry made money: insurers raised $ 18 billion from homeowners and paid $ 6.3 billion in claims.

According to Cal Fire, California destroyed just over 3,600 buildings in forest fires this year, despite the loss of nearly 2.5 million acres. While two small communities were badly damaged – Grizzly Flats and Greenville – nothing has occurred near the destruction of Paradise in 2018.

The industry is encouraged by the lower losses, but is by no means convinced that the risks have decreased.

“We need to find out if this is a trend or a slip-up. We have been relatively lucky,” said Mark Sektnan, vice president of the American Property Casualty Insurance Association, a lobby group.

Last year the ministry tried to solve the insurance problem with laws: Lara introduced a bill, AB 2367, that would have forced insurers to sell insurance in places where homeowners and communities had made themselves more fireproof.

Insurers protested and the bill died. An industry-sponsored bill that would have required insurers to expand coverage while allowing more generous tariff increases also died.

But the failed attempts to find a legal solution helped stimulate a dialogue between regulators and industry representatives on how best to reduce the risk of property damage from fire. With industry support, Lara’s agency worked with Cal Fire and the Office of Emergency Standards last year to develop standards for home hardening. In addition, insurers are working with an industry group, the Insurance Institute for Business & Home Safety, to set standards.

Insurers have difficulty calculating forest fire risk

Allstate owned more than 10% of all home insurance in California when it made a momentous decision in 2007: It would no longer sell new policies in “disaster-prone California,” according to the press release.

The decision appeared to be confirmed on November 8, 2018, when two major forest fires broke out hundreds of kilometers apart. The campfire killed 85 people in Paradise and destroyed more than 10,000 homes; The fire in Woolsey, near Malibu, killed three people and burned 1,500 houses.

Together they cost the company $ 529 million, Allstate said. The loss would have been worse if the company hadn’t already halved its California business, the company said.

Now the company is ready to grow again in California. In a filing with the Ministry of Insurance earlier this year, the company called for a 4.6% rate hike and said it would resume selling new policies to homeowners.

Since the request for an interest rate hike is still pending, the company did not want to comment in detail. But the move is being closely monitored in the industry.

“It’s important that they want to write new businesses in every zip code,” Frazier said.

However, Frazier and others believe the industry needs to get a better handle on the risks before they can re-enter forest fire areas in large numbers.

To this end, some companies are taking a more detailed approach. While most businesses look to the neighborhoods and communities, Farmers Insurance’s partnership with Zesty.ai is an attempt to assess the risks lurking with any potential property.

By combining artificial intelligence software with aerial imagery, Zesty.ai can fix problems such as terrain and building materials.

“We can identify the roofing material. We can identify things like the propensity, ”said Toth, CEO of Zesty.ai. “We can identify many things that identify the vulnerability of the structure.”

Farmers didn’t respond to requests for comment, but the company has told the Department of Insurance that the technology could make it possible to sell insurance to up to 30,000 homeowners who would have been overlooked. The ministry granted farmers a 7% tax increase earlier this year.

Higher premium rates in forest fire areas

Farmers isn’t the only company asking more for insurance coverage.

The Ministry of Insurance has approved dozen of tariff increases over the past few years. Most of the gains are 6.9%, and that’s no coincidence. If a company demands more, consumer groups or other outsiders can step in and enforce administrative hearings that can add a year or more to the process.

In any case, insurance managers say the premium hikes are starting to stabilize the market after years of turmoil.

“The tariffs were artificially pushed down by the Ministry of Insurance,” said Sektnan. “Businesses are now getting to the point where they are comfortable with the fees they are allowed to charge.”

Some companies have received larger rate hikes – CSAA received an 18.5% hike earlier this year. The company has told the Ministry of Insurance that it will not lay off any customers until the end of 2023.

“We intend to continue to renew all of our policyholders at sustainable prices,” said CSAA spokesman Jason Willett.

Meanwhile, at the instigation of the Ministry of Insurance, some major insurers are already offering discounts to homeowners, maintaining “reasonable space” around their homes, installing fire-resistant siding, and taking other steps to mitigate risk.

The discounts are “something we ask for all the time,” Soller said.

For example, CSAA offers a 15% “Fortify Your Residence” discount for houses with roofs made of clay, slate or other resistant materials and which meet other safety standards. The insurer offers an additional 5% saving if the shared apartment meets certain thresholds.

The largest home insurer in California, the State Farm Group, is also entering the discount business. According to the Ministry of Insurance, the company plans savings of 5 to 7% for houses with fire-resistant roofs and other safety features. However, the proposal is linked to the company’s outstanding request for a total rate hike of 6.9%. The company did not want to comment on the plan.

Even with discounts, it’s obvious that the price of home insurance will keep rising in much of rural California – it’s just not clear by how much.

“We know (insurers) need to be able to cover their losses,” said Heaton of Rural Counties. “People in rural areas know they have to pay more for insurance.”

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