As destructive wildfires grow, western states face a home insurance crisis • Nebraska Examiner

In the coming years, climate change could force people in western states from their homes, not just by worsening wildfires and destructive floods — but also by putting insurance coverage out of reach.

Nevada’s fire season, once limited to late summer and early fall, now spans nearly the entire calendar year. And the soaring home insurance payouts following destructive fires has insurance companies pulling coverage and hiking rates in the state.

The state has largely been spared widespread property damage from wildfires compared to some others, but Western wildfires have increased in volume and magnitude near urban cores in recent years.

In September, the Davis Fire broke out in Davis Creek Regional Park, about 20 miles south of Reno. The wind-driven fire rapidly burned through 5,824 acres of private, state, and federal lands, driving the evacuation of about 20,000 people from residential neighborhoods and businesses. The fire ultimately destroyed two commercial buildings, 14 residences, and 22 outbuildings.

The destructive Davis Fire was a prime example of wildfires in Nevada increasing in populated areas where prime development is budding against fire-prone wilderness zones.

During the Western Governors’ Association conference at the Four Seasons in Las Vegas Tuesday, Western governors said they are well aware of the home insurance crisis facing their states.

“We know that across the West changing climate has really created one of the most challenging home insurance markets that we’ve ever experienced,” said Democratic Gov. Jared Polis of Colorado, during a panel on insuring homes against wildfire. “We have areas of our state where insurance companies are exiting the market entirely on homeowners insurance.”

Nevada’s Republican Gov. Joe Lombardo did not participate on the panel, but Nevada is also facing a growing home insurance crisis with thousands of homeowners insurance policies being cut this year due to wildfire risk, according to the State of Nevada’s Division of Insurance.

A month before the Davis Fire broke out, Nevada Insurance Commissioner Scott Kipper told lawmakers that in 2023, 481 homeowners insurance policies were canceled or non-renewed due to wildfire risk — an 82% increase compared to the previous year, when 264 were. That same year, nearly 5,000 applications for homeowners insurance were declined due to wildfire risk — a 104.8% increase over the previous year, when 2,439 were declined.

Earlier this year insurers reported their intention  to cancel another nearly 5,000 policies due to wildfire risk in 2024.

The retreat of home insurance companies from Nevada is hitting some areas harder than others. The vast majority of homeowner insurance applications being declined are in Northern Nevada.

This year, Incline Village has seen two of 21 companies stop writing policies for their homes, according to the Nevada Division of Insurance. Stateline, on the Nevada side of scenic Lake Tahoe,  saw the number of available companies drop from 18 to 14.

Most mortgage lenders require homeowners to maintain insurance. Without access to coverage, thousands of Nevadans could be forced to reconsider where they live.

Karen Collins, vice president of property and environment at American Property Casualty Insurance Association, said the insurance crisis has also been propelled by economic forces like supply chain disruptions, labor costs, and inflation, which increases the rebuilding costs for homes hit by disasters.

“The U.S. property insurance market is really facing the hardest market cycle in a generation,” Collins said during the panel Tuesday.

Collins said the cost and scale of home insurance payouts is out of alignment with the money companies have reserved to payout claims.

“Now, in the West, we can compare this to a severe drought, where conditions have also drawn down water resources. This has often led to restrictions or other mandates to try to preserve our limited water supply. In a hard market cycle, insurers have similarly had to make adjustments to manage, in some cases, the very limited capital they may have,” Collins said, illustrating the point with a photo of the Hoover Dam bathtub ring.

The Davis Fire was a worse-case scenario for insurers, a fire in a heavily wooded high-priced area that was fueled by a high-wind event.

“We’re seeing these larger and costlier events,” Collins said. “Across Western states in high-wind events, it’s the rapid speed of fire spread under these conditions that are leading to some of the costliest and, of course, deadliest losses in history.”

Governors on the panel Tuesday agreed that the most immediate way to manage wildfires in the West is by reducing wildfire fuel through mechanical thinning of forests and prescribed fires.

The Western Governors’ Association approved a bipartisan policy resolution Tuesday to tackle wildfire and related air quality issues. The policy calls for increased use of prescribed fire and encourages greater state-federal collaboration on smoke management planning and other tools to facilitate the use of prescribed fire where appropriate.

During the panel, Polis highlighted his state’s efforts to address fleeing home insurance companies.

Last year, Colorado passed a bill giving Colorado home and business owners who cannot secure adequate property insurance the option to obtain an insurance plan of “last resort,” a quasi-state insurance plan for property owners who can prove they are unable to get insurance from a private company because of wildfire risk.

“We have to figure out how to reduce those costs. We’ve done some work in Colorado,” Polis said. “We created an insurer of last resort, effectively, for areas where everybody’s pulled out of. Otherwise, folks would be out of compliance with their mortgages.”

More than half of states offer such plans — known as a FAIR plan — which take on high-risk areas when others won’t.

Nevada does not have an insurer of last resort, but the Nevada Division of Insurance plans to request a feasibility study on what a Nevada FAIR Plan might look like.

This article first appeared in the Nevada Current, a sister site of the Nebraska Examiner in the States Newsroom network.