Homeowners in California saw nearly a 10% increase in home insurance rates from May 2021 to May 2022, according to the Policygenius Home Insurance Pricing Report. Experts point the blame at an increase in costly wildfires, a rise in building costs, and a shortage in construction labor.
As we approach the peak wildfire season months of September and October in the Golden State, here’s what homeowners can expect.
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Why are home insurance rates going up in California?
Home insurance rates are increasing in California and some insurers are not renewing policies, in part due to the devastating wildfires the Golden State is seeing.
“There’s inflation that’s taken place, so the cost to rebuild a home costs quite a bit more than it used to,” says Janet Ruiz, Director of Strategic Communications at the Insurance Information Institute.
“There’s also a shortage of contractors. And we’re seeing hotter, drier weather — and more wind — which leads to more wildfires. So all these things are coming into play at the same time.”
When there’s a devastating wildfire, the Insurance Commissioner of California usually places a moratorium on non-renewals of policies in the affected area, meaning insurers can’t refuse to renew your policy due to where you live. But those moratoriums have expiration dates.
“Sometimes those moratoriums are set for a year after the fire, or two or three, but what we’re seeing is it can take a lot longer than a year to rebuild. So a lot of those homeowners aren’t going to be [back] in those homes [by the time the moratorium is lifted],” says Kenneth Klein, Louis and Hermoine Brown Professor of Law at California Western School of Law.
Because some insurers stopped renewing or writing policies in areas of California that are considered high risk for wildfires, many homeowners had to go with last-resort coverage options, like the California FAIR Plan. FAIR Plans are typically more expensive than standard insurance that you can buy on the open marketplace from private insurers.
“It’s complex, but what happened was that admitted carriers — all the standard household names — weren't allowed to raise rates for a while. It was very challenging to get any rate increases through, [so] they were insuring less homes and businesses. And homeowners in those [high-risk wildfire] areas were having to go [find coverage] through surplus carriers or through the California FAIR Plan. And from that they saw huge increases,” says Ruiz.
What protocols are being put in place to help homeowners in California?
To make more homes eligible for coverage, insurers are requiring homeowners to reduce their fire risk by fire-proofing their homes.
“The primary focus of the California Insurance Commissioner, Ricardo Lara, has been on resilience. His legislative package and focus has been on having resilient and fire-safe homes. He is promoting that insurers require certain resilience. That should somewhat address availability across the state,” says Klein.
The Insurance Institute for Business & Home Safety (IBHS) and the Department of Insurance created a program called Wildfire Prepared Home, a research-based mitigation program to help homeowners reduce their fire risk and earn discounts off of their insurance premiums.
To receive a Wildfire Prepared Home designation, you must take steps to mitigate your home — like installing fire-proof shingles and removing shrubbery from your deck — against wildfire damage and pass a home inspection to verify your home meets all of the eligibility requirements for the program and designation.
But that’s not the only wildfire mitigation program available.
“If you’re part of a Firewise USA community [program], many insurers offer a discount. It makes a lot of difference because Firewise communities do big fire breaks to keep fire out of the communities and some common grounds. And they help individual homeowners get hooked up [with contractors to help fire-proof their homes],” says Ruiz.
How can California homeowners lower their home insurance rates?
There are a few things homeowners in California can do to make their home insurance cheaper.
Try to get insurance with a standard carrier
“The most expensive insurance is with the FAIR Plan. So if you can get out of the FAIR Plan and in with an admitted [standard] carrier, you’ll see lower prices. The standard carrier rates are going up, but it will still be less expensive than the FAIR Plan,” says Ruiz. If you have a FAIR Plan but you’ve since taken steps to fire-proof your home, consider shopping for insurance on the private marketplace to see if you qualify for coverage now that you mitigated the risk.
FAIR Plans are insurance pools that are designed as last-resort coverage options. Insurance through the California FAIR Plan is typically less comprehensive, more expensive, and requires proof that you were denied coverage by multiple insurers in order to qualify for coverage.
Fire-proof your home as best as possible
Insurance carriers are looking for homeowners who have taken advantage of fire-proofing initiatives like the Wildfire Prepared Home Program and the ones CalFire puts out. They are offering rate discounts as a reward, says Ruiz.
But qualifying for a discount doesn’t just come from fortifying the structure of your home. “It’s not just your house — it’s the topography of where you live and if there are fire services nearby. But it certainly helps if you’ve done the work to your home,” says Ruiz.
In order to obtain the Wildfire Prepared Home designation, you’ll need to make sure your home meets the following criteria:
Class-A fire-resistant rated roof that’s clear of debris
Gutters and downspouts made of noncombustible material, like metal, that are clear of debris
Noncombustible vents or ones resistant to corrosion, ember, and fire
Exterior walls with a minimum of 6 vertical inches (measured from the ground up) of noncombustible material such as brick, stone, or concrete
Decks and porches that are clear of debris and don’t have trees or shrubbery on them
Check out the full Wildfire Prepared Home checklist to make sure you’ve taken all the steps required to reduce your home’s wildfire risk and secure a discount on your home insurance premiums.
Image: Erik Von Weber / Getty