Wild fires and insurance

[Cyberc]

With the devastating ongoing fires in L.A. I hope that everyone is okay.

As a European I don’t know what kind of insurances you can take out in the U.S. Are your houses etc covered by the ongoing wild fires? Or are you not covered since it’s considered an act of god?

 

[CalGalTraveler]

Homes are covered by wildfire but oh boy, given the devastated areas have mostly high end homes, not sure how many insurance companies will be able to survive this. Combined with Florida Hurricanes, this is not going to be pretty for the insurance industry.

Mortgages also require fire insurance to be held by the homeowner for such disasters.

 

[Carolinian]

People can buy fire insurance, usually either as a homeowners policy that covers lots of other things including liability or as a fire and extended coverage that includes fewer things. They are regulated by each individual state, but there are no "act of God" exclusions that I am aware of on fire coverage. Some insurance companies have been pulling out of California or reducing their coverage there due to perceived inadiquancies in state or city policy related to fire danger, and after this it may be a stampede. California has a state run fall back insurance program run through the state for when private insurance companies will not insure homeowners.

The other issue is how will insurance companies survive this level of losses. That may impact homeowner insurance in other states as most insurance companies operate in multiple states. There are also backup "reinsurance" providers like Swiss Re that insure the insurance companies when the losses are too large. This may even put a strain on them.

 

[VacationForever]

Usually exclusions include earthquakes and floods, and you can buy additional insurance for those two "acts of god". Fire is part of standard coverage.

 

[dioxide45]

Here's an article that discusses the fires and insurance. Some of these people may or may not have insurance. If they own the home outright, they may not carry certain coverages. Some that are wealthy may opt to self insure their homes. Some people may have had insurance dropped on their homes and not picked up anything new.

Are California wildfires covered by insurance? What to know

The fires in Southern California are expected to cause devastating losses to residents—many of whom have had their insurance policies canceled last year.

www.newsweek.com

 

[klpca]

We renew next month. We can't believe that we have retained coverage since we moved into our home in 1987 as we live on the edge of a canyon preserve. Our current policy covers us in case of a wildfire, but as reported the insurers don't want to provide that coverage any more. One of our kids lives in a town called Truckee, essentially in the middle of a forest. They could not obtain insurance that covered wildfire, but it is required by the bank so they have a state sponsored policy through CA called the FAIR plan. It costs them an extra $5k per year. Everyone calls it the "Truckee tax".

 

[emeryjre]

Just because a policy was cancelled is not a reason for a homeowner to not have coverage
There are other insurance companies willing to take the risk
Including State Sponsored plans
The issue is the cost of the new coverage
The deductibles may be much higher
The insurance companies spotted the potential for a disaster and decided to drop coverage
Similar to what people in Hurricane areas are going through
It is not a pleasant situation in any manner, shape, or form
But the risks of these disasters seems to have been foreseen by the insurance companies
We are on alert here in North San Diego County at this time for similar winds and the potential for disaster
Praying hard for no problems

 

[T_R_Oglodyte]

California is implementing regulations mandating admitted insurance providers (insurers who are registered with Insurance commissioner) to write policies in high fire-risk areas. It seems to me that to comply, they will have to charge higher rates in low fire-risk areas to cover the risks in high fire-risk areas. Effectively, policyholders in low risk areas will be subsidizing policy holders in high risk areas.

I suspect this will cause many policy holders in low risk areas to switch to non-admitted providers, who will be free to insure whomever they choose. The fire insurance on our house in North County San Diego is placed with a non-admitted carrier, as their quote was half the rate charged by the one admitted carrier we could find who was willing to write a policy.

******
If my understanding of the situation is correct, these regulations will have disparate impact on based on wealth. Working class, ordinary Joe and Jane neighborhoods are generally not located in high fire-risk areas. As is evident from the fires in LA, the areas that are most impacted are some very wealthy neighborhoods. If my understanding is correct, this will result in poorer people subsidizing owners of mansions.

 

[CalGalTraveler]

We renew next month. We can't believe that we have retained coverage since we moved into our home in 1987 as we live on the edge of a canyon preserve. Our current policy covers us in case of a wildfire, but as reported the insurers don't want to provide that coverage any more. One of our kids lives in a town called Truckee, essentially in the middle of a forest. They could not obtain insurance that covered wildfire, but it is required by the bank so they have a state sponsored policy through CA called the FAIR plan. It costs them an extra $5k per year. Everyone calls it the "Truckee tax".

We own a second home in the Tahoe area. We were dropped by our insurance so purchased a non-admitted provider for a while - Lloyds at $4000/year for a small 3 bdrm home. Crazy but that was better than the Calif Fair plan which is terrible coverage. We had no other choice.

Fortunately our insurance broker found us a great policy for a fraction of that with a reputable carrier. We also have our primary insurance with this carrier. Our broker believes having all of our policies with them is why they are not dropping our policy or raising rates significantly.

Every year that we are renewed at a "reasonable" rate we breathe a sigh of relief.

 

[TUGBrian]

as I understand it... traditional "fire coverage" found in most policies only covers fire that starts in the home.

while "wildfire coverage" is a completely separate matter and more optional "act of god" type situations much like flood insurance.

 

[Cyberc]

Thanks everyone for the insight.

I'd understand why some companies wouldn't want to cover fires in CA due to the high risk, but on the other hand, what should people do to protect their houses etc. Even with the state sponsored plan in CA, $5,000 is a lot of money only to cover fire.

Is $5,000 the going rate to cover wild fires or is that more of an average number?

I know every country is different in how things work, but I could never imagine paying anything close to $5,000 in total for all of my insurances. That said in my country Denmark, some areas have a higher risk of flooding and these areas also pay a higher insurance compared to other - but nothing close to $5,000. Also for every insurance taken on a house, there is an additional fee of approx $4. Those money goes into a financial fund - and IF a house is flooded those money pay to rebuild the house. If the fund is short of money the government fund the shortage.

Hopefully the fire(s) will be under control soon - unfortunately, according to the media coverage it does not look like it.

 

[CalGalTraveler]

@Cyberc we don't pay $5000 for either of our California properties.

But we also pay for Earthquake Insurance on our main home in the SF Bay Area - not cheap but not $5000 either. We don't have EQ on our second home in the mountains - not needed.

 

[CalGalTraveler]

I wouldn't be surprised if some insurance lawyers try to weasel out of paying using this clause or add such restrictions in the future.

The lawyers are going to have a field day with this. After recent fires in NorCal many homeowners who lost their homes hired a lawyer to represent them with the insurance company. I have a good friend who lost her home in a fire (not wildfire). The insurance company attempted to offer her and her DH much less than the value of what was insured. It took several years and court dates to resolve.

 

[WinniWoman]

People can buy fire insurance, usually either as a homeowners policy that covers lots of other things including liability or as a fire and extended coverage that includes fewer things. They are regulated by each individual state, but there are no "act of God" exclusions that I am aware of on fire coverage. Some insurance companies have been pulling out of California or reducing their coverage there due to perceived inadiquancies in state or city policy related to fire danger, and after this it may be a stampede. California has a state run fall back insurance program run through the state for when private insurance companies will not insure homeowners.

The other issue is how will insurance companies survive this level of losses. That may impact homeowner insurance in other states as most insurance companies operate in multiple states. There are also backup "reinsurance" providers like Swiss Re that insure the insurance companies when the losses are too large. This may even put a strain on them.

Another issue is California did not allow insurance companies to increase their premiums so many pulled out.

 

[beejaybee]

So many natural disasters occurring in states not known for wildfires, earthquakes, hurricanes, etc.
Here in Ohio we do get tornados- last year one ripped through our suburb toppling trees and tearing off roofs which is minor damage compared to what could have occurred. But because of this, insurance companies are now excluding roof replacement unless a specific rider is purchased or with a 10k deductible.

 

[WaikikiFirst]

mandating admitted insurance providers (insurers who are registered with Insurance commissioner) to write policies in high fire-risk areas. It seems to me that to comply, they will have to charge higher rates in low fire-risk areas to cover the risks in high fire-risk areas. Effectively, policyholders in low risk areas will be subsidizing policy holders in high risk areas

Well, now you are just trying to be logical. You haven't lived in CA for very long, have you? There was a drop-box at the border where you were supposed to leave your logic.

Working class, ordinary Joe and Jane neighborhoods are generally not located in high fire-risk areas

True in urban/metro areas, but go out into the boonies, way out into the country, well off the coast, and many of the higher risk areas are not mostly "the wealthy". What was the name of that town that got wiped out in NorCAL, Paradise? That and others were not havens for "the wealthy". Still, yes, given that such a high % of the population lives in the metro areas, your point stands.

 

[WaikikiFirst]

what should people do to protect their houses

Plenty. Keep a 20-30 ft area around the house free of high volumes of flammable vegetation, etc ... esp DEAD stuff. Trim back branches way back from roofs. Plenty more. I was in a driveway of a home nearby with a contractor last fall. I noticed a strange material on the roof of the house. I asked him what he thought it was. He couldn't care to think about it. I looked again later and realized it was some rubberized fabric designed to stop embers from igniting the roof.
I live in NorCAl, in an area that is not so different from the Hollywood Hills. I had arguments with both the neighbors who were here when I moved in about their refusal to do the obvious things. As of last year, they both moved. The 2 new neighbors are polar opposites.
1 of them quickly did everything I ever expected of the prev one, and he did more.
The other new neighbor showed us his plans to plant 40 ft tall trees as close as possible to my home. We've been in court. Won 1st round. He is an ass who will take more beatings in court. (google money makes some 30 yr olds really really really REALLY freakin stupid)

People act like idiots and then tehy complain about insurance companies. There is plenty to complain about, but first they can stop acting like stupid, lazy children

 

[jp10558]

As much as I hate the idea of people losing their houses, it does seem to me like insurance companies are sending a signal that you need to move or self insure. It seems like especially if you're living in mansions, you should also be able to pay higher insurance rates if it's a riskier area. Of course I'm sure many feel like insurance companies are ripping people off too - I don't even begin to know how to evaluate that.

 

[VacationForever]

As much as I hate the idea of people losing their houses, it does seem to me like insurance companies are sending a signal that you need to move or self insure. It seems like especially if you're living in mansions, you should also be able to pay higher insurance rates if it's a riskier area. Of course I'm sure many feel like insurance companies are ripping people off too - I don't even begin to know how to evaluate that.

You know that insurance companies are not ripping people off when you have companies like State Farm pulling out. State Farm basically said you could not pay me enough to insure your home.

 

[T_R_Oglodyte]

Well, now you are just trying to be logical. You haven't lived in CA for very long, have you? There was a drop-box at the border where you were supposed to leave your logic.

I drove by. I thought it was a closed agricultural inspection station.

True in urban/metro areas, but go out into the boonies, way out into the country, well off the coast, and many of the higher risk areas are not mostly "the wealthy". What was the name of that town that got wiped out in NorCAL, Paradise? That and others were not havens for "the wealthy". Still, yes, given that such a high % of the population lives in the metro areas, your point stands.

Certainly true, but those areas are not where the huge potential underwriting losses are. Losses mount with the number of homes destroyed and there isn't much density in those areas. The big losses occur with urban wildfires, where lots of expensive houses burns.

In addition, in many of those "not wealthy" areas, many people have made a choice to live in rural, low-density, forested or brushy setting. Paradise was not necessarily a haven for the wealthy, but many of the people affected had made a choice to live in that setting. Especially retirees, who sold a house somewhere else and used the proceeds to buy their retirement house in the country.

By sending them an accurate financial signal about the natural hazard, many people will make other, wiser decisions.

 

[easyrider]

We have wildfire insurance on our cabin in the forest. Decades ago it was rare to have a huge wildfire in this area because grazing livestock kept the ground vegetation in check. Then some officials decided that grazing in forest lands should be banned so the vegetation grew, dried and became a carpet of tinder on the forest floor which easily starts on fire. A few years ago some smarter officials decided the livestock should be allowed to graze in the forest but it will take time, like decades, to clean things up.

Another problem is how the trees are harvested. In the past, clear cutting was a method that got a bad rap and even though I'm not a fan of how things look after a clear cut, a large cut does act as a fire break.

Bill

 

[T_R_Oglodyte]

As much as I hate the idea of people losing their houses, it does seem to me like insurance companies are sending a signal that you need to move or self insure. It seems like especially if you're living in mansions, you should also be able to pay higher insurance rates if it's a riskier area. Of course I'm sure many feel like insurance companies are ripping people off too - I don't even begin to know how to evaluate that.

Generally I concur. If you want to build or buy a house on a barrier island, you should assume the associated risk. Same thing with building a house near So Cal wildlands.

The only thing that gives me pause is that some risks, such as flooding and hurricanes, can have greater impact in lower income neighborhoods where many people don't have much choice about where they can locate.

 

[WinniWoman]

As much as I hate the idea of people losing their houses, it does seem to me like insurance companies are sending a signal that you need to move or self insure. It seems like especially if you're living in mansions, you should also be able to pay higher insurance rates if it's a riskier area. Of course I'm sure many feel like insurance companies are ripping people off too - I don't even begin to know how to evaluate that.

We have friends down in Punta Gorda, Fla. After their insurance premium skyrocketed last year they decided to skip insurance altogether. They feel they’re in their late 70’s anyway and will take the risk.

 

[RX8]

And we all suffer. My home insurance rose 180% just in the last two years. I shopped around everywhere and my existing insurance, even with the drastic increase, was still the cheapest.

 

[klpca]

Another issue is California did not allow insurance companies to increase their premiums so many pulled out.

Our insurance has never gone down or stayed the same. We have had the same company since 1987, get a longevity discount and a multi policy discount, and have never had a claim and our annual premium is just under $3k per year with a $2500 deductible. I believe that it was about ~ $700 when we bought the house. Our house is 2300 sq feet, nothing fancy.

This is not directed at anyone in particular:
When I hear people talking about CA residents like we are not actual people, I have to scratch my head. Where are we all supposed to move that is affordable, safe from natural disasters and near employment centers? Most of us live where we live because we have family and/or jobs tying us to our location. In our case, the gain on the sale of our house is substantial and we're not going to sell and pay tax to the government just so we can move. Plus, where would we move? (Hint - not Truckee lol. It's lovely but I'm not doing snow in my senior years). At at the end of the day, we can't leave our elderly parents anyway - all 4 of ours are still alive and going into their 90s. We are stuck like a cork in a bottle.

In San Diego we had a fire in 2007 called the Witch fire. It "jumped" a 12 lane freeway and burned homes nowhere near the back country or canyons. If you back up to a huge concrete firebreak, you would think you'd be safe, but not in those winds. When the wind speeds get going like what we experienced then, there is not much that you can do other than pray. The embers are carried far away from their source, towards homes that would otherwise seem very safe. That what it looks like in Altadena (my husband's cousin most likely lost his home there the other day - he's still waiting for the official confirmation and hoping that he was somehow spared). Areas that were safe, are safe no longer. We're pretty used to our seasons, and January isn't usually fire season. Things are not like they were when I was a kid, or even a young adult. My entire adult life has had the word "drought" in it every single day. I am sick and tired of it (the money we have spent on saving water!). But that is where we are today, and our heightened fire risk comes with the drought conditions. For other areas, flooding is the issue, for us it's fire. I wish that folks would have a little compassion and not dunk on California residents during an absolute tragedy.