Getting Homeowner’s Insurance in High-Fire Risk Areas

California homeowners are at risk of losing insurance in high-wildfire risk areas, leaving them with fewer or more expensive options. Yet, there is hope and it helps to “know your score.”

As fires continue to blaze across the state barely one year after the deadly and devastating Woolsey and Camp fires, insurance companies have non-renewed more than 350,000 California residents in high-wildfire risk areas.

In fact, CBS Evening News reported that “insurance companies are limiting their exposure in fire-prone areas as they have already paid more than $24 billion in claims in the past two years.”

“We are seeing an increasing trend across California where people at risk of wildfires are being non-renewed by their insurer,” said state Insurance Commissioner Ricardo Lara in a statement in August. “I have heard from many local communities about how not being able to obtain insurance can create a domino effect for the local economy, affecting home sales and property taxes.”

Commissioner Lara said this data should be a wake-up call for state and local policymakers that “without action to reduce the risk from extreme wildfires and preserve the insurance market we could see communities unraveling.” 

New data collected from insurers and compiled by the California Department of Insurance (CDI) shows that homeowners’ insurance in the voluntary insurance market is becoming harder to find.

Even if a homeowner’s insurance policy is renewed, the CDI reported that new premiums could be raised more than 300 percent in most cases.

The CDI report also said these same counties saw a steady increase in new California Fair Plan policies during that time frame, growing 177 percent, compared to only a four percent increase for the five counties with the lowest risk.

The Fair Plan, providing a maximum amount of insurance to $1.5 million with no liability, damage from water or theft of personal property, provides insurance as a last resort for homeowners unable to find coverage in the voluntary market. 

The Department added that “some of these homeowners have conducted extensive and costly defensible-space and other mitigation, but these actions did not lower premiums.”

So, what happens if your insurer won’t renew your policy, writes one you can’t afford or, worse yet, not write a policy at all?

Know Your Fire Score. In order to accurately assess a dwelling’s exposure to wildfire, risk assessment companies such as ISO, CoreLogic, and FireLine, use a scoring system from 0-30, with zero being perfect and 30 being extremely high risk.

FireLine assesses risk at the address level using advanced remote sensing and digital mapping with satellite technology to determine the effect of the three primary factors that contribute to wildfire risk:

• Fuel—grass, trees, and dense brush feed a wildfire
• Slope—steeper slopes can increase the speed and intensity of wildfire
• Access—limited road access and dead ends can impede firefighting equipment

FireLine also identifies properties located in Special Hazard Interface Areas—risks outside of fuel areas but exposed to wind-born embers and high heat from nearby fuels.

Max Kramer of Kramer Insurance Services, Inc., located in Pine Tree Circle, specializes in Topanga and uses those scores to determine fire risk. (www.kramerinsurance.com)

Kramer determines insurability by asking three questions: is it insurable, where is it insurable, and what is the cost?

“In Topanga, the first thing we do is a brush report,” he said. “It gives us a wildfire hazard score for each location, and we can see what companies would write for that location. Topanga is high…[yet] being underinsured is also a hazard, something that happened after the Woolsey fire when many people who lost their homes realized their insurance wouldn’t cover the cost of rebuilding.”

In a high-wildfire risk area such as Topanga, Kramer advises working with an experienced agent to determine what companies will cover your house, at what premium, obtain enough insurance for the property and how to keep from being non-renewed by your insurance company.

“Insurance seems to be one of those things people go, ‘Oh, I need insurance because of the loan on my home,’ but they don’t actually understand what’s covered and what’s not at certain times,’” he said.

Kramer noted that while companies score on fire assessments, “no two houses are the same; [and what is available through] public information or the Assessor’s office is different than what is on the property…carriers are very different; one company will exclude what another will carry.”

Admitted vs. Non-Admitted Carriers Admitted insurance carriers are backed by the state, which means:

• The insurance company, such as Allstate, AAA, State Farm, and Farmers, must comply with all state regulations regarding insurance, which are established and overseen by the National Association of Insurance Commissioners.
• If the insurance company fails financially, the state will step in to make payments on claims as necessary, yet there is a maximum amount they will pay.
• These carriers are all regulated by the California Department of Insurance and any rate changes must be approved beforehand.

A non-admitted insurance company, such as Lexington Insurance Company, Lloyd’s of London, Scottsdale and North Star Mutual Insurance Company, are not licensed by the state, which means:

• The insurance company does not necessarily comply with state insurance regulations.
• If the insurance company becomes insolvent, there is no guarantee that claims will be paid, even if the case is active at the time of the bankruptcy or financial failure.
• If policyholders think their case was handled improperly, they can’t appeal to the state insurance department.
• Companies can set their own rates and are not subject to rate approval by the CDI.

“Due to the Woolsey fires, there have been many changes to the insurance market for our area,” Kramer said.

Those changes include companies moving out of the area altogether and/or companies changing their underwriting requirements, such as requiring a minimum of 24-foot-wide roads; must live within five miles from a fire station and have dual access; no coverage on non-through streets; and there must be a verified fire hydrant within 1,000 feet of the property. 

The items above are just some of the issues for an agent, who must first run a brush report to determine the wildfire score and which carrier, if any, will accept the application.

“It’s a good thing to have [an] admitted, such as Nationwide or Travelers,” Kramer said. “But because they don’t do business at a certain level, based on brush reports and wildfire scores, you are kind of stuck with choosing the non-admitted carriers. After this score is determined you will know if you can get coverage through an admitted or non-admitted company—80 percent of our business in the Canyon is through non-admitted companies.”

California Fair Plan If you can’t get traditional insurance, whether that carrier is admitted or non-admitted, then the California Fair Plan (CFP) is often the insurance of last resort. Yet, many customers may not be aware that the Fair Plan also has major gaps in coverage.

Homes that are close to brush/fire zones often have no other option but to have insurance through the Fair Plan, as many insurance carriers require 1,000-foot clearance from brush areas.

Many carriers require 100 feet of clearance minimum, which is the standard, but some ultra-conservative carrier can require more than 100 feet).

Insurance Agent Tina Purwin covers some of the highest risk areas in Southern California.

At her website, www.purwininsurance.com, she points out that  “types of coverage should include coverage for the dwelling, separate structures (detached garage, pool, guest house, fencing, and walls), personal property, loss of use, personal liability, and guest medical.” While she wants her clients to be fully insured for all possibilities, Purwin points out that the Fair Plan, with no other extended coverages, only pays up to $1.5 million maximum.

“The California Fair plan is basically hazard insurance only, with no coverage for liability, damage from water, or theft of personal property,” Purwin said. “You have to get a companion plan, or “difference in conditions”  plan that covers liability, water and theft, the three main things that go hand-in-hand with the California Fair Plan; most people need more than $1.5 million in total coverage, but the CFP hasn’t increased their maximum amount of coverage in probably over 25 years.”

Robert Feldman (robertfeldman@allstate.com) owner of Coast to Canyon Insurance Services, is a high-risk insurance broker who covers thousands of homes in Malibu, Topanga, and the surrounding Santa Monica Mountains communities.

Feldman and his Allstate team are among the very few agents in the state who offer insurance programs that eliminate the need for the Fair Plan for single-family homes in Malibu. 

“The biggest myth is that California Fair Plan is their only choice,” Feldman said. “In 99 percent of cases, there are other carriers that will write a policy. The Fair Plan has a max total coverage of $1.5 million and wrap-around policies do not cover any type of fire, not even a kitchen fire.”

Feldman said he often brings non-admitted carriers, such as North Light, into California, in order to cover large, expensive homes in Malibu and its surrounding communities.

“I am constantly trying to correct people who believe that a wrap-around policy covers them in case of any type of fire,” he continued. “That is where a lot of people got stung in the Woolsey fire. It can cost $300 per square foot or higher to rebuild your home; or $1 million to rebuild your home. That would leave you with only $500,000 for personal property and additional living expenses, so this client would be short an additional $500,000 to $1 million in coverage.”

Feldman also emphasized that the Fair Plan has dramatically raised its rates, which may not make it a great plan for most homeowners, considering both price and coverage, compared with other options.

Regarding insuring a home’s contents, Feldman suggests homeowners schedule possessions such as jewelry/watches, furs, firearms, gold bullion, and fine arts—where there are limits on such items.

“Items such as photos, that aren’t worth anything outside of your family, they aren’t going to give you any monetary value,” Feldman said. “I would always recommend that individuals get photos of their possessions such as pianos and musical instruments and keep it on a flash drive or the cloud and not on the premises. Have evidence of high-ticket items that you have scheduled and what you have because there is no way to tell from ash, so [insurance companies] tend to go with the lower value, as you can imagine.”