Fires across California could accelerate home insurance crisis in wildfire zones

Tom Wheeler is a Madera County supervisor and loves to brag about the area’s many attributes — the lakes, the mountains, the proximity to Yosemite.

It’s just not a great place to buy homeowners’ insurance.

Wheeler lives in North Fork, in the Sierra Nevada foothills, and in the past decade his insurance premiums have grown sixfold, to more than $6,000 a year. He said other homeowners in the area are paying as much as $12,000 a year.

Wheeler and his constituents are caught up in a crisis that’s engulfed many rural Californians in the past few years: As wildfires have worsened, insurance companies are bailing out on many of their customers.

Tens of thousands of homeowners in fire-prone areas are being forced to buy from the California FAIR Plan, the state’s ultra-expensive “insurer of last resort,” after getting dropped by traditional carriers. Wheeler is one of them.

Now the Creek Fire is ravaging parts of Madera and Fresno counties, destroying more than 300 homes and other buildings — and will likely make the insurance market even tougher in the months to come. The fire had chewed through 163,000 acres with zero containment as of Wednesday morning.

“It won’t help, I tell you,” said Wheeler, who was evacuated from his home Tuesday.

The problem is growing. About 348,000 homeowners in high-risk wildfire areas lost their insurance coverage from 2015 to 2018, the most recent figures available from the state Department of Insurance. That included 80,472 homeowners in Fresno County and 13,046 in Madera County.

“It’s just sad; I feel for these people,” said Sheri Lee of Kraft and Lee Insurance Agency in the Madera County community of Oakhurst. “It’s been really bad for the last five years. The companies started (dropping policyholders) way before the Camp Fire.” The 2018 Camp Fire, the deadliest in California history, killed 85 people in Paradise and destroyed thousands of homes.

Insurance industry seeks higher rates

The insurance industry says wildfires have turned its business upside down in parts of California. Insurers paid out a combined $25 billion in claims from California wildfires in 2017 and 2018, although some of them collected billions in reimbursements from PG&E Corp., which was blamed for the Camp Fire and several other major fires.

Carriers say the problem lies with regulators. The Department of Insurance won’t allow them to raise premiums high enough to cover the risk, they say, forcing them to abandon their customers when the policies come up for renewal.

“We have to allow the regular market to charge a price that reflects the risk,” said Rex Frazier, head of the Personal Insurance Federation of California, which lobbies for major carriers.

Frazier said Wednesday the 2020 wildfire season, already the worst on record for acres burned, is putting more strain on the market. All of the fires put together are “approaching the Oakland Hills Fire,” he said.

The 1991 fire cost $2.9 billion, adjusted for inflation, making it the sixth costliest fire on record.

The Camp Fire ranks as the worst, with insurance claims estimated at upwards of $8.7 billion, according to the Insurance Information Institute. Of the 10 costliest fires in U.S. history, all 10 are in California.

Frazier said there are solutions to the insurance crisis. He faulted the Legislature for failing to pass an industry-sponsored bill, AB 2167, to overhaul the market.

The bill would have required companies to keep writing coverage in wildfire zones while streamlining regulations to provide greater rate relief to the industry. The bill got watered down to the point that it would have merely required the Department of Insurance to study the issue, and then shelved altogether in the waning days of the legislative session.

Frazier said the higher rates traditional insurers are seeking would have served policyholders well. They’d still be “dramatically cheaper than the FAIR Plan,” he said.

‘He didn’t clear his trees and he got canceled’

The FAIR Plan was created by the Legislature mainly to help inner-city property owners who couldn’t find coverage after the riots of the 1960s.

In recent years the plan, which doesn’t get taxpayer subsidies, has become the last-gasp insurer for rural Californians locked out of traditional coverage because of wildfire risks. As of a month ago, the FAIR Plan had 200,415 policyholders, up from 130,827 in late 2015.

For customers, “the FAIR Plan is the worst option,” Frazier said.

Industry executives and regulators agree that the market needs to be overhauled so homeowners can leave the FAIR Plan and get traditional coverage again — but they can’t agree how.

While Frazier is arguing for rate relief for companies, Insurance Commissioner Ricardo Lara pushed a bill, AB 2167, that would have required traditional carriers to sell coverage to homeowners who’ve “hardened” their properties by installing fire-resilient roofs and taking other precautions. That bill died, too.

Lee, the Oakhurst insurance agent, said she’s been able to avoid the FAIR Plan for her own home only because her carrier, Allied Insurance, insisted that she remove several trees and shrubs around the yard.

“They came out twice and took pictures,” she said. “I was angry at first. “Now I’m grateful that they had me do that.”

She said her next-door neighbor refused to take similar steps and got a non-renewal notice from his carrier.

“He didn’t clear his trees and he got canceled,” she said.