California’s insurance crisis has been deepening as the wildfire-wary industry continues to drop households, businesses, farms and even wineries.
SACRAMENTO, Calif. (CN) — It’s a scene that’s played out far too often over the last decade in California: entire neighborhoods, rural towns and even cities emptied in minutes due to a hard-charging wildfire.
Living under the constant threat of waking up to flames has become the harsh reality for millions, a sort of prerequisite for living in a state with what is now a year-round wildfire season. During a record-breaking 2020 season in which 4.2 million acres — 4% of the state’s total acreage — burned, several major blazes ignited in December in counties like San Diego, Orange and Ventura. Not to be outdone, 2021 kicked off with a spate of wildfires in the north part of the state.
But as much of the current conversation on combatting wildfires has turned to mitigation efforts like prescribed burns and forest thinning, those fortunate enough to outlast the state’s most recent devastating stretch with their homes and businesses intact are facing a new potential nightmare: surviving the next big blaze without property insurance.
As the severity of California’s wildfires continues to increase, wary insurance companies are fleeing themselves before the next big one hits the Golden State. Their evacuation has put pressure on lawmakers and regulators to mull changes to state insurance laws.
During a state Senate oversight hearing Thursday, experts explained the ongoing trend of insurers dropping households in fire-prone regions has now expanded to businesses, farms and even nonprofits attempting to conduct planned burns.
“We’re seeing a reduction in the availability of sufficient coverages, and the cost of coverage that’s available is double or triple,” Michael Martinez, legislative director for the California Department of Insurance, testified.
The insurance industry is still licking its wounds after covering over $30 billion in losses during California’s last three major wildfire seasons. As a result, the number of dropped policies and nonrenewals continues to skyrocket.
Each year since 2015, the number of insurer-initiated consumer nonrenewals has grown, including a 31% spike in 2019. During this stretch companies have declined to renew coverage for over 950,000 households. Counties considered to be at highest risk for wildfires predictably bore the brunt of the dropped policies, with state data showing nonrenewals jumped 203% in 2019 for 10 northern counties including El Dorado, Amador, Tuolumne, Trinity and Nevada.
“Rates continue to rise in some areas triple; in other areas [insurance companies] have decided not to cover at all and that just goes against what seems reasonable,” said state Sen. Ben Hueso, D-San Diego.
While Hueso and the Legislature have taken steps in recent years to buffer the homeowners’ crisis, such as giving the insurance commissioner the ability to issue temporary nonrenewal moratoriums, businesses have largely been left out of the new protections.
Martinez told the Senate Insurance Committee the state is experiencing a “hardening” of the commercial insurance market that has left a range of businesses from retail, apartment complexes, farms and even wineries struggling to obtain new, affordable coverage. But the full scope of the issue is still unknown, as unlike the residential side the state does not have official data on commercial nonrenewals. Martinez said the insurance department is currently working with insurers to get an accurate update.
The state may not have a full understanding of the problem yet, but representatives of the insurance and agricultural industries said the pain is already being felt.
John Norwood of the Independent Insurance Agents & Brokers of California called the current situation “unprecedented.” He detailed one family winery on the brink of foreclosure due to insurance woes and added insurers are even taking a cautious approach when dealing with campgrounds, youth camps, private schools and other nonprofits in wildfire-prone areas.
“These are insureds that used to pay 10 to 20 cents per hundred in property value for insurance and now are paying $2 to $5,” Norwood said. “If they can even find it.”
Meanwhile the California Farm Bureau Federation complained its members are being unfairly targeted in the fallout of the recent wildfire season. It says over 500 hundred farmers in counties like Napa, Sonoma, Monterey and San Luis Obispo have been unable to renew their policies since 2019.
“Commercial agriculture has been captured in the greater insurance availability drama that’s befalling many residential and commercial properties in the state,” said Robert Spiegel, a federation lobbyist.
The bureau claims small family farms stand to be affected the most, as without access to insurance, farmers can’t take out loans to plant crops or buy equipment.
To buffer the mounting crisis being felt primarily in the state’s best winegrowing regions, Spiegel said the state should offer farmers a last-resort insurance option like it does for homeowners through the FAIR Plan. Spiegel’s suggestion was echoed by several of Thursday’s speakers, including Hueso and state Senator Bill Dodd.
While it wouldn’t allow the FAIR Plan to sell crop insurance, there is a bill pending in the state Senate that would allow it to offer farmers basic property coverage. Senate Bill 11 has been referred to the Insurance Committee but has not been scheduled for a hearing.
Insurers are also becoming hesitant to cover prescribed or permitted burns which have become a focal point of the state’s wildfire mitigation plan. Fearing the possibility of a fire escaping or an insured breaking environmental regulations, companies are increasingly refusing to write the policies necessary to conduct the planned burns.
“I think it’s a very difficult space to write in,” said Mark Sektnan, vice president of state government relations for the American Property Casualty Insurance Association.
Sektnan attempted to highlight the perceived insurance risk by noting timber companies have paid hundreds of millions to settle lawsuits related to escaped fires.
Lenya Quinn-Davidson, fire adviser at the University of California Cooperative Extension, countered the insurance industry is exaggerating the risk of prescribed burns. She pointed to data showing of 1,500 documented burns conducted nationwide between 2015-2019, only one insurance claim over $5,000 was reported and no related lawsuits.
The lack of insurance options is already hampering the state’s mitigation efforts and preventing nonprofits from conducting the helpful burns, she testified.
“The biggest challenges that face prescribed fire in California are associated with liability and insurance,” she said.
Dodd, D-Napa, said he was befuddled by the insurers’ hesitancy, noting the effectiveness of the mitigation tactic.
“It’s just intuitive. We know that prescribed burning works, we know that it reduces risks for homeowners and commercial businesses, but yet we have this dichotomy that insurance companies aren’t writing policies for burn bosses,” the frustrated senator concluded.