If you look at the top 10 most destructive fires in California history, according to the Western Fire Chief’s Association, you’ll notice almost all of them occurred in the last five years or so.

– August Complex in Mendocino, Humboldt, Trinity, Tehama, Glenn, Lake, and Colusa counties, August 2020: 1,032,648 acres burned, 935 structures destroyed, 1 death

– Dixie in Butte, Plumas, Lassen, Shasta, and Tehama counties, July 2021: 963,309 acres burned, 1,311 structures destroyed, 1 death

– Mendocino Complex in Colusa, Lake, Mendocino, and Glenn counties, July 2018: 459,123 acres burned, 280 structures destroyed, 1 death

– SCU Lightning Complex in Stanislaus, Santa Clara, Alameda, Contra Costa, and San Joaquin counties, August 2020: 396,625 acres burned, 225 structures destroyed, 0 deaths

– Creek in Fresno and Madera counties, September 2020: 379,895 acres burned, 858 structures destroyed, 0 deaths

– LNU Lightning Complex in Napa, Solano, Sonoma, Yolo, Lake, and Colusa counties, August 2020: 363,220 acres burned, 1,491 structures destroyed, 6 deaths

– North Complex in Butte, Plumas, and Yuba counties, August 2020: 318,935 acres burned, 2,352 structures destroyed, 15 deaths

– Thomas in Ventura and Santa Barbara counties, December 2017: 281,893 acres burned, 1,060 structures destroyed, 2 deaths

– Cedar in San Diego County, October 2003: 273,246 acres burned, 2,820 structures destroyed, 15 deaths

– Rush in Lassen County, August 2012: 271,911 acres burned (in CA), 0 structures destroyed, 0 deaths

Now imagine that your company is responsible for replacing the structures and belongings lost in those fires. This is why homeowners’ insurance premiums are skyrocketing. Not only are we seeing more and bigger wildfires, but the construction costs to rebuild are also ballooning.

Like other businesses, insurance companies exist to make a profit, and when they experience catastrophic financial losses year after year, they have to change their pricing structure or fold.

Raising prices is easier said than done in California, because the state limits what insurance carriers can charge and how much they can increase their premiums in any given year. Because of this, many insurers have chosen to either stop doing business in California or to get out of the fire insurance business altogether.

A few years back, a partner and I bought the old Skate City building on South State Street in Ukiah. My annual casualty insurance cost went from $4,200 to $18,000 overnight when the existing insurance company canceled my policy and I had to sign up with the California Fair Plan — a plan of last resort for property owners. This building is not a wooden structure in the middle of a forest where the risk of fire is significant. It is a steel building surrounded by asphalt. And still, the cost of insurance more than quadrupled.

If you’re thinking, “No problem, I’ll just go without insurance and accept the risk myself,” think again. Unless you can buy your property for cash and own it outright, your lender will almost certainly require insurance — at least to cover the loan they hold.

Here’s the thing, if insurance companies cannot make a profit in California, they’ll leave. It’s as simple as that. So, while I do not like the idea of paying more for insurance, I really don’t like the idea of our state government keeping prices artificially low to the point where we lose all our insurance vendors and are forced into the incredibly expensive California Fair Plan that only provides limited coverage.

State legislators are trying to mandate that insurance carriers do business in California. That probably isn’t legal. Several legislators have also suggested that if an insurance company wants to write auto policies in California, it must also offer fire casualty insurance. If we took this approach, we’d end up with the same problem with auto insurance that we now have with fire insurance.

The bottom line is this: Insurance companies will make economic decisions about where they do business based on what they can charge and what they anticipate in losses. Currently, the State of California makes this difficult. It requires insurance carriers to use an outdated formula based on fire activity during the prior 20 years as opposed to anticipating what will likely happen in the next two years.

To be fair, the state has approved several insurance companies’ requests for rate hikes as high as 15 to 25 percent, but the state is a large bureaucracy, and it moves slowly. Fixing this problem will take time and some insurers aren’t willing to wait — they are canceling policies and/or moving out of state.

The best you can do until this mess is fixed is to work with a reputable local insurance agent who helps you find coverage you can afford. A good agent will review your policy coverage (casualty, liability, replacement costs, etc.), but it’s up to you to read your policy so you know what you’re getting. As always, the big print giveth and the small print taketh away.

If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.

Dick Selzer is a real estate broker who has been in the business for more than 45 years. The opinions expressed here are his and do not necessarily represent his affiliated organizations.