Wildfires are becoming more difficult to insure. Last year’s Camp Fire in California destroyed almost 14,000 homes and cost insurers between $8.5 billion and $10.5 billion, according to an estimate by the Insurance Information Institute.
“The astronomical cost of the past two years of catastrophic wildfires is unsustainable and must be addressed in order to protect the availability of insurance,” said Janet Ruiz, a spokeswoman for the institute.
In response, California on Thursday banned insurers from canceling people’s policies in fire-prone areas. The state imposed a one-year moratorium on insurance policy non-renewals for at least 800,000 homes around the state. The state also asked insurers to voluntarily stop dropping customers in other parts of the state due to fire risk.
California’s playing with fire
In the U.S., 4.5 million homes were considered a high wildfire risk. More than 2 million of these homes are in California, according to the III.
“This is a great way for legislation to protect homeowners across the state and will hopefully lead to a more stabilized insurance market in the areas affected by the wildfires,” said Fabio Faschi, property and casualty team lead for Policygenius. “It's terrifying enough to find out that you're at risk of being affected by these calamities, but no homeowner should ever be left scrambling to find insurance after being dropped by their existing carrier.”
Almost 20% of policyholders in California say their insurance company dropped or declined to renew their policy in the past three years, according to a survey from United Policyholders, a nonprofit advocacy group for insurance customers.
Can you still get insurance in a fire-prone area?
Most homeowners insurance policies cover fire damage. But if you live in a high-risk area, you may need to pay for additional coverage and your premiums may be higher. (If you rent, buying renters insurance will typically cover you in a wildfire.)
Though there’s been an uptick in wildfires, the insurance market in California is still “very healthy,” said Nicole Ganley, a spokeswoman for the American Property Casualty Insurers Association.
There are California laws in place to keep insurers from dramatically increasing prices, but after a natural disaster, it’s likely your premiums will go up.
While the moratorium is beneficial for homeowners, they could still be dropped from their policy after the year is up, said Ganley.
If you get dropped by your insurance company, you will have to find new homeowners insurance. You may also be able to access California’s Fair Access to Insurance Requirements plan, which provides homeowners insurance to properties in high-risk areas.
“According to the FAIR plan, you have a right to homeowners insurance. They have to cover you,” said Ganley.
The FAIR plan is a last resort for homeowners who can’t find insurance anywhere else. It only covers fire-related damage, so you would have to find additional insurance for other risks.
I live in a fire-prone area. How do I get insurance?
If you live in a risky area, Ganley recommends talking to a local broker to find out what types of policies are being written in your area. Local agents will likely be most equipped to help you find the right policy. (Policygenius can also help you compare and buy homeowners insurance.)
It’s important to protect the assets you have and make sure you have enough coverage. The easiest way to take stock of what needs to be covered is by taking a home inventory.
“Insurance is priced on the likelihood of damage occurring, so while a fire-prone area may at first appear extremely costly to insure, you truly have to realize that the value of having insurance is still far greater than any potential annual cost for a policy,” said Faschi.
Image: Michael Mroczek