Almost a year to the day after evacuating during the devastating CZU Lightning Complex fires in August 2020, Judy Osborn learned she had been abandoned by her home insurance company.
His two-bedroom home in the Santa Cruz Mountains had become too risky to cover, his provider said, and Osborn had to seek a new policy amid fire season.
“It was like adding insult to injury,” Osborn said. “It triggered a lot of memories and fear.”
Following a series of destructive and deadly wildfires in 2017 and 2018, insurance companies ended coverage for tens of thousands of California homeowners as providers pulled out of high-risk areas of fire, forcing many homeowners to purchase policies through the expensive California FAIR Plan, the state’s insurer of last resort.
Now, with what could be the worst of this year’s fire season approaching, many more homeowners could soon be at risk of losing their policies.
“It’s that time of year, and here we go again,” said Osborn, who has finally found new private cover for the home she’s owned since 1985.
In response to growing uncertainty in the insurance market, the state has imposed new wildfire regulations in recent years aimed at reducing costs and protecting homeowners. But the insurance industry has strongly pushed back on the reforms, arguing that the state should instead review how it regulates policy rates to account for more frequent catastrophic fires.
“Risks are growing and rates are going to have to go up to ensure insurers are solvent and operational in California,” said Seren Taylor, senior legislative counsel with the Personal Insurance Federation of California, an industry trade group.
In 2018, former Governor Jerry Brown signed a law prohibiting insurance companies from cancel or refuse to renew owners’ policies in areas affected by a forest fire up to twelve months after the fire. In 2019, California Insurance Commissioner Ricardo Lara ordered the FAIR plan to extend its coverage beyond fire to include liability, theft and other elements of a traditional home insurance policy. Insurance companies, which administer and fund the state-created FAIR plan, challenged the settlement in court.
And later this year, the state insurance department is expected to start requiring providers to offer lower rates to homeowners who fireproof their homes.
While consumer advocates have applauded the new rules, some in the insurance industry fear they could lead to providers reducing their presence in the state even further.
“If (Commissioner Lara) goes too far, and he has done it many times before, the insurance companies will just say, ‘We’re leaving California – we’re not going to write this product anymore,’ Edan Cassidy said, a broker from Cassidy Insurance Agency in Scotts Valley near Santa Cruz.
At the beginning of this year, high-end home insurers American International Group Inc. and Chubb Ltd. significantly reduced their coverage in California following recent fire seasons. And this summer Geico has closed all of its physical sales offices in the state, though company officials have said it will continue to offer policies online.
Department of Insurance spokesman Michael Soller said the agency is working with the industry to understand their concerns and refuted the idea that the new rules could push many insurers out of state.
“We have a strong insurance market across the state, even with the massive wildfires we’ve seen over the past few years,” Soller said.
In 2020, insurers terminated coverage for more than 212,000 properties in California, according to the latest status data. More than 77,000 homeowners were unable to find private insurance that year and signed up for the FAIR plan. This is a slight increase from 2019, but more than triple the number of new FAIR Plan fonts in 2018.
To reverse this trend, insurance companies say they must be allowed to set rates based on the risk of wildfire caused by the climate crisis. Industry wants to use computer models to predict future fire risks and guide policy approach. That would raise premiums, but it would also allow insurers to write policies for more high-risk areas and let fewer homeowners down, insurance companies say.
“We’re dealing with regulations that say we can only look back and we can’t look forward,” said Taylor of the Personal Insurance Federation. “That’s what’s missing in conversations to increase availability.”
The state insurance department — which, under a 1988 voter-approved law called Prop. 103, must approve changes to insurance company policies – currently requires insurers to set rates based on historical damage. Providers have been able to raise rates in recent years, but they argue that’s not enough to protect their risk.
State insurance officials and consumer advocates say they are changing that policy and allowing so-called “disaster modelingcould unfairly increase rates for landlords through an opaque and potentially discriminatory process.
“Insurance companies have said ‘we need to use algorithms to set insurance rates,’” said Harvey Rosenfield, founder of Consumer Watchdog. “But under Prop. 103, they are required to use historical data, which is empirical.”
With seemingly no resolution on the horizon, this could mean more lost policies and increased premiums in years to come.
Sean Murawsky had to take out a FAIR Plan policy after his insurer stopped covering his home in Boulder Creek following the CZU fires. His annual bonus is now around $3,000, about three times what he was paying before.
Despite rising costs and the growing threat of wildfires, he has no plans to move his family from the area.
“I’m not afraid,” he said. “I know there is a high risk, but there is a high risk in many parts of California.”