Wildfire And California Home Insurance Challenges

Remains of a home burned in the Camp Fire which destroyed 19,000 structures in the town of Paradise, California. Photo George Wuerthner 

State Farm Insurance Company announced it would no longer take on new insurance clients in California due to the rising cost of fire-related losses.

The company cited “rapidly growing” catastrophe risks like wildfires, “historic increases” in construction costs, and a challenging reinsurance market for its decision.

The company says that it will continue to insure existing customers.

In recent years, wildfires have increased in frequency and severity—15 of the top 20 fires in the state’s history, in terms of structure damage, have occurred since 2015.

Remains of medical clinic in Paradise, California after the Camp Fire swept through the community. Photo George Wuerthner 

The 2018 Camp Fire, for example, caused 85 deaths and destroyed nearly 19,000 properties in the town of Paradise, California. Eight of the top 10 fires in insured losses in the United States have occurred since 2017.

Since mortgage companies require that any borrower for a home mortgage must have insurance, the decision by State Farm, especially if other companies follow suit, could make buying a home in California difficult.

Those who can’t find private insurance can obtain state-subsidized policies at a high cost. Known as the Fair Access to Insurance Requirements (FAIR) Plan, the state has created a pool of all insurers authorized to operate.

FAIR Plan policies tend to be significantly more expensive for their limited coverage because the properties covered tend to be high risk. Therefore, the FAIR Plan is an option of last resort.

At this point, approximately 3% of all California homes are covered by FAIR insurance policies.

Home that survived the Thomas Fire by Santa Barbara, California. Photo George Wuerthner 

A recent study determined which zip codes were most at risk from wildfire. The researchers found that the very high and high-risk ZIP codes account for 22 percent and 41 percent, respectively, of the total land area. In addition, these ZIP codes tend to be suburban or rural and include the area commonly known as the “wildland-urban interface” (WUI).

Geographically speaking, the highest risk ZIP Code areas were the Sierra Nevada foothills, the coastal mountains of southern California, and the Klamath Mountains in NW California. For example, I have a friend who lives in Mariposa in the Sierra Nevada foothills near Yosemite, and her home insurance is nearly $5000 a year.

This sign exempiflies the attitude of rural residents who believe more logging will preclude large blazes. Photo George Wuerthner 

Across the state, nonrenewal of insurance was highest in the eastern portions of San Diego County (dominated by chaparral) and the Sierra foothills. Interestingly very few insurance policies were canceled by companies in urban areas.

Nevertheless, areas with the highest wildfire risk have the highest nonrenewal rates.

But insurance rates have declined since 2008 (when adjusted for inflation) except for high wildfire risk areas.

One interesting research finding is that “insurance nonrenewal issues are not predominantly experienced by communities with more vulnerable or minority populations.”

Homes in South Lake Tahoe that burned to the ground even with green trees surrounding them–demonstrating that reducing home flammability is key to reducing fire-related home losses. Photo George Wuerthner 

Some may bemoan the higher insurance costs in wildfire-risk areas, but insurance costs or cancellations may begin to limit home construction in fire-prone areas or what I call the “fire plain.”

Just like river flood plains, home construction in the Wildlands Urban Interface, or what can be called “rural sprawl,” is costing everyone in society because much of all fire fighting is focused on these areas.

Ironically in most “rural” counties, the attitude of residents and county officials is “Don’t tell me where I can build my home.” But they are often the first to come with their hands out, asking for more “fire fighting” and more “forest management (i.e., logging).

With global warming, we expect wildfires to continue and increase in number and size. If county commissioners are unwilling to limit rural home building, insurance companies will accomplish the goal by deciding who to insure and how much to charge them.