Jennifer Burt knows she lives in a fire-prone community. That’s why she’s done everything she can to fire-proof her home in Meadow Vista, in the bushy, densely wooded Placer County foothills, even installing a sprinkler system on the roof.
Yet a few weeks ago, her insurance carrier — Lloyd’s of London, known for insuring high-risk properties — told her it was declining to renew her homeowners’ policy. Lloyd’s also dropped coverage on two rental properties Burt owns in Graeagle, a heavily forested community northwest of Truckee.
Burt was already paying a lot for insurance — $6,300 a year for the three homes — and now fears that her premiums could double or triple as she shops for replacement coverage. Rising premiums are also hurting her livelihood as a real estate agent: Burt lost a sale in Colfax recently because the buyers couldn’t find insurance for less than $6,900, and their lender backed out of the deal.
“It prevented them from purchasing a home in California,” Burt said. “I get so frustrated that the insurance commissioner won’t do anything. It’s reaching a point where it’s a daily conversation in my office as to whether insurance rates are going to kill real estate in California.”
Two consecutive disastrous wildfire seasons have created a budding insurance crisis for thousands of Californians who live in and around fire-prone areas. Stung by $24 billion in losses, insurers are imposing rate hikes or dumping customers altogether, leaving homeowners to seek replacement policies that can be two or three times as expensive.
“It’s really sticker shock for people to see their homeowners’ (premium) go from $1,200 to $3,600,” said Richard Harris of Harris Insurance Services, an independent agency in Grass Valley. “They can’t afford these increases, and they leave crying. We can’t help them. You can only have so many people leaving your office crying.”
State officials know they have a problem on their hands, though lax insurance industry reporting requirements make it difficult to determine just how widespread it is. A task force advising Gov. Gavin Newsom and the Legislature reported in June that homeowners’ insurance costs at least 50 percent more in wildfire zones than elsewhere.
“I wouldn’t say it’s crisis mode yet but it’s definitely a different story for people living in a high-risk area,” Insurance Commissioner Ricardo Lara said in an interview. “We need to take pro-active steps to protect our consumers.”
Lara said he’s working with lawmakers to enact a series of reforms later this year, including guarantees that insurers will renew policies in communities that have “hardened” homes and taken other steps to reduce fire risks. He also favors a proposal by the legislative task force to create state subsidies for low-income people already living inside the fire zones, which tend to be rural and struggling economically.
“There’s this misconception about folks living in the (fire areas), especially in Southern California — people think there are these multimillion-dollar homes in Malibu,” he said.
Limited insurance data
Lara acknowledged more data is needed to better understand the scale of the problem. Carriers aren’t required to tell the state Department of Insurance when they drop a customer. The department does have detailed records on company rate hikes, but the agency has hasn’t used them to calculate an overall average of how fast prices are growing in fire areas, nor has it conducted an analysis that would show which communities are being hardest hit by the mounting insurance crisis.
Lara’s staff said some of that work is underway, and he’s having the department start calculating overall trends in premiums. He said his office doesn’t have the legal authority to force insurers to notify his department about non-renewals
But a Bee review of department records, industry statistics and interviews with insurance experts shows that the hardships are spreading, especially in rural California, and thousands of Californians have had to seek more expensive coverage. More than a dozen homeowners from the Yosemite area to the Oregon border told The Bee and McClatchy they’ve been blindsided by policy cancellations and rate hikes in the past few months.
Perhaps the most telling: The Department of Insurance received 451 complaints about cancellations and premiums from customers in high-risk fire zones last year, according to department records provided to The Bee under a California Public Records Act request. In 2010 those complaints numbered just 95.
Insurers have complaints of their own. Homeowners’ coverage, an $8 billion-a-year business in California, has become an unmitigated disaster for carriers: For every $1 they collected in premiums from Californians last year, they paid $1.70 in claims, according to data collected by the Department of Insurance.
At the same time, insurers are facing rate hikes from their own carriers, known as re-insurers. But they’re unable to pass those higher costs onto homeowners. That puts further pressure on them to reduce the amount of coverage they sell in fire zones, industry officials say.
Allstate Insurance Group, the state’s sixth-largest seller of homeowners’ coverage, announced in December that it has cut its California homeowners’ business in half over the past decade. The insurer reported $529 million in losses from last fall’s Camp Fire and the Southern California Woolsey Fire.
Sacramento insurance lobbyist Rex Frazier said it’s little wonder that carriers are backing away. Frazier, president of the Personal Insurance Federation of California, said insurance companies have been subjected to “a decade of price suppression” that’s left them unable to fully recoup the cost of doing business in the fire-prone state.
“Is this really the time that a bunch of companies are going to rush into high-risk fire areas?” he said.
Newsom’s wildfire panel said insurance in the fire zones hasn’t reached the emergency stage, like it did after the industry halted all sales of earthquake coverage following the 1994 Northridge quake. That led to creation of a state-run insurer called the California Earthquake Authority. Its policies are considered expensive and can double the cost of insuring a home.
About 98 percent of Californians still get homeowners’ coverage from State Farm, Farmers and other traditional insurers, whose rates are regulated by the Department of Insurance. Coverage is still a good deal for most: The average policy cost $1,000 a year in 2016, the latest figures available from the Insurance Information Institute. The U.S. average was $1,192 while the most expensive state was hurricane-prone Louisiana, at $1,967.
‘Insurer of last resort’
Those averages are of little comfort to Renee Asmus.
Asmus has lived for a quarter century in one of California’s most fire-prone communities, on a 10-acre spread outside Nevada City. She’s been zealous about clearing the brush and trees around her home to tamp down the risk.
Still, that didn’t prevent her longtime insurer, CSAA Insurance Group, from notifying her recently that it was canceling her homeowners’ coverage, forcing her to begin shopping furiously for a new policy, she said.
“They all say, ‘No, we’re not going to insure you. There’s not a chance we would insure you,’ ’’ Asmus said. “I can’t afford to move. I’m deeply rooted here. I have children and grandchildren and a life here.”
After more than two-dozen phone calls, the 61-year-old Asmus said she found some relief the other day: An agent said she might be able to get insurance for around $2,950 a year. Most of the coverage would be supplied by an organization called the California FAIR Plan — the state’s “insurer of last resort.”
“All of a sudden it’s jacked up; it’s just outrageous,” said Asmus, who was paying $1,200 a little more than a year ago. “But I realize that other people are paying a lot more than I am.”
CSAA spokesman Paul Araquistain said: “After careful review of our exposure in Northern California, we are non-renewing a very small percentage of insurance policies with the highest risk. Non-renewals are being handled with great care and with enough advance notice to allow people time to find alternative coverage.” He said the company wouldn’t comment on individual policies.
Insurers say growing wildfire risks leave them little choice but to curtail their policy sales.
“It’s time to address the impact that more severe weather is having on Americans instead of fighting about climate change,” Allstate Chief Executive Tom Wilson said in announcing its pullback from California. “It is now time to come up with longer term solutions, such as ensuring power lines are properly maintained, homes have natural fire barriers and building codes reflect increased severe weather.”
The Department of Insurance has granted 65 rate increases to mainstream homeowners’ insurers since January 2018, including such big names as Farmers, State Farm, Travelers and Nationwide.
Most of the increases have been for an average less than 7 percent. But that doesn’t tell the whole story of what’s happening in fire zones. More and more companies are canceling policies, putting homeowners at the mercy of runaway rates as they seek new coverage.
When homeowners can no longer get insurance from traditional carriers like CSAA, they have to reach out to “surplus” companies like Lloyd’s of London, whose rates aren’t regulated.
If all else fails, they go to the California FAIR Plan. The FAIR Plan, created by the California Legislature when insurers abandoned inner cities following the 1960s riots, offers bare-bones coverage that doesn’t include theft or liability insurance. It isn’t subsidized by the state. FAIR Plan rates are regulated, but with fewer limitations compared to the traditional insurers.
Bottom line: Homeowners who get dropped by traditional carriers can wind up paying double or triple for their replacement coverage.
Their ranks are growing. The number of homeowners in fire-prone areas getting coverage from the FAIR Plan has increased from 22,397 to 33,898 in the same time period, according to the Department of Insurance. The FAIR Plan imposed a 20 percent rate hike in April, with the brunt of the increases falling on homeowners in fire areas, and plans another double-digit increase next year, the plan’s president Anneliese Jivan told The Bee.
Surplus carriers have seen their business expand, too, from 42,298 policies sold in 2014 to 69,347 last year, according to the Surplus Line Association of California. Sales are booming in fire-prone communities: In Sonora, the number of policies tripled from 331 in 2014 to 1,078 last year. In Placerville, sales jumped from 252 in 2014 to 727 last year. Sales nearly quadrupled in Groveland over the same time period, from 126 in 2014 to 474 in 2018.
Yet even some of the surplus companies, which tend to take on the riskiest policies, are backing away from some California customers.
“They look at us as a catastrophic state,” said Harris, the insurance agent. “It’s all because of the Paradise fire.”
Problems in Paradise
Paradise residents Colleen and Kevin Jones can attest to the chaos gripping the insurance market. Last year they learned Nationwide Corp. was going to cancel their policy effective Nov. 15.
The Camp Fire struck exactly a week before the cancellation took hold, and Nationwide paid them $105,000 for the damage to their home.
Now their new insurer, Lloyd’s of London, has recently told the Joneses it will cancel their policy this fall. (Officials with Lloyd’s couldn’t be reached for comment). The Joneses are now getting quotes ranging from $3,000 to $10,000.
They still haven’t found replacement coverage at prices they consider reasonable. Colleen Jones worries insurance problems will hamper Paradise’s ability to recover from the fire that destroyed most of the town.
“How is it possible that all these insurance companies can just say, ‘No, we can’t insure you,’ ” Colleen Jones said. “I mean everybody — everybody — is having a huge problem now getting insurance. Now people are wanting to rebuild, but they can’t get the insurance, so what’s going to happen to Paradise? Everybody who lives here, we’re all dependent on insurance companies now.”
The Camp Fire killed 85 people, more than any other wildfire in California history. It also claimed one additional victim: Merced Property & Casualty, a small carrier that folded under the weight of roughly $100 million in claims from the Paradise disaster.
Brad Roeber, who operates the California Insurance Guarantee Association, said his industry-supported organization has paid “the lion’s share” of claims in full. But about 30 of the 200 claims exceed the state-mandated $500,000 cap and won’t get paid in full.
Merced Property’s demise has affected homeowners elsewhere. Harris had coverage on his home in Alta Sierra, south of Grass Valley, with the Merced company. Now a customer of the FAIR Plan, the insurance agent is paying about $3,000 a year, including the money he’s spending to cover theft and other risks not included in the FAIR policy.
That’s nearly triple what he paid Merced before it collapsed.
“They were a great company,” Harris said. “It was really sad to see.”