Home Insurance in High Fire Risk Areas

Home Insurance in High Fire Risk Areas

The 2020 fire season in California resulted in a year of record-setting wildfires that burned across the entire state. With over 9,600 fires and 4 million acres burned, 2020 ended as the largest wildfire season in California’s modern history. The result, home insurance in high fire risk areas has now become extremely difficult for properties owner to obtain.

5 of the 6 largest wildfires in Californias history occurred just in 2020. What does this mean for homeowners in California? As mentioned in a previous article, hundreds of thousands of homeowners have had their homeowners insurance non-renewed or canceled as a result of the recent fire seasons. The aftermath of the 2020 fire season will most likely lead to a significant increase in homeowners facing the exact same problem.

Why Insurance Companies Are Non-Renewing Customers In High Fire Risk Areas

A big reason behind these massive quantities of non-renewals comes down to something known as reinsurance. Insurance companies purchase reinsurance from other insurance companies to mitigate the amount of risk they take on for catastrophic losses like fires. Just like how you purchase home insurance when you buy a new home and have a deductible, insurance companies purchase reinsurance and have a deductible they are responsible for.

Let’s say ABC Insurance company purchases reinsurance through a large reinsurer like Lloyds of London. ABC Insurance has a $500 million deductible. Fire season comes around and things don’t go so well for ABC. By the end of the fire season, they incur $1.2 billion in homeowners insurance losses. In this scenario, ABC is responsible for their $500 million deductible and the reinsurer, Lloyds of London, would cover the rest.

Just as it is getting significantly more expensive and harder for customers to obtain insurance in California the exact same thing is happening for insurance companies with their reinsurance. Reinsurers are now significantly increasing rates and some companies are no longer offering reinsurance in California.

Reinsurers are now saying they are only going to take on “x” amount of risk, which causes insurance companies to have to reduce their wildfire risk by non-renewing customers who are located in these wildfire-prone areas.

 

 

California Wildfires

 

What Are Your Options Going Forward?

 

  1. With only a few companies in California willing to insure homes located in these areas, it is extremely important to find an independent agent. Why an independent agent? An independent agent has the ability to check with a number of different homeowners insurance providers and will also have access to surplus lines carriers, who specialize in insuring these unique risks.
  2. Find a company with a wildfire program. A few companies currently have specific homeowners insurance programs in place for properties that are located in areas with high wildfire risk. These markets do have very stringent underwriting guidelines in place in order to properly write these types of risks but it is in your best interest to check and see if your home is eligible.  At Don Williams & Associates, we have access to these kinds of markets and can help see if your home will be eligible.
  3. The California Fair Plan. The California Fair Plan is an insurance pool made up of all the insurers who are admitted to write property insurance in California. The Fair plan was created as a last resort insurance option for customers who can not obtain insurance with an admitted carrier. We also have access to the Fair Plan in the event we cannot put you in one of our wildfire programs.

Homeowners Insurance is our specialty.

At Don Williams and Associates we have been able to help many customers find home insurance in high fire risk areas. We not only have access to a wide variety of homeowners insurance carriers, but we have a long history of writing these types of risks and understand this market like the back of our hand. Reach out to one of our agents at 408-402-3646 or online here to see how we can help with your property insurance.