Next battle in California with insurers is over home policyholder discounts for cutting fire risks
Will Abrams and his family barely escaped from their house in the Riebli-Wallace neighborhood of Santa Rosa as the flames from the 2017 Tubbs fire bore down on their residence.
“I had my (two) kids under my arms running to our cars and we barely escaped with our lives,” said Abrams, a 49-year-old consultant who has background in high-tech businesses and government under former New York Mayor Michael Bloomberg. “We were driving through flames.”
As others rebuild, Abrams has not. His family still resides in a rental home about 15 minutes from his vacant burned lot. He fears that even if he rebuilt with all new features to fortify his home against a wildfire, such as a noncombustible roof, dual-paned windows and sprinklers, he may still not get insurance coverage in an area close to forests, grasslands and other flammable landscapes.
“I was concerned that if I did all the right things that insurance would be increasingly an issue,” he said. “We haven’t made a decision on the lot.”
The quandary Abrams faces is becoming the new normal in California as state lawmakers ponder the future potential of wildfire risk for the 8.5 million home insurance policyholders in California.
In response, there is movement afoot to focus on steps homeowners can take to make their homes less vulnerable to fire risk - from placing new vents in attics and crawl spaces so burning embers will not get inside to replacing wood-shingled roofs - and gain momentum to solve this vexing problem. If such measures are taken, home insurers should be required to provide coverage at an affordable price, homeowners and lawmakers say.
“The world changed around them (homeowners). Now we have to help them adapt to the new reality or our California dream becomes at risk,” Assemblywoman Lorena Gonzalez, D-San Diego, said. “That is why it is important we have a broad coalition.”
Gonzalez is a sponsor of legislation (AB 2367) that would require insurers to write or renew policies for existing homes in communities that meet requirements under an eventual statewide standard for hardening homes against fires. The bill would give state Insurance Commissioner Ricardo Lara the power to require insurance companies to offer financial incentives for homeowners who make their residences less prone to fire risk - similar to how automobile insurance policies offer a safe driver discount.
Lawmakers are under pressure to do something, since insurers have stepped up policy cancellations as they rebalance their risk portfolio and recover from billions of dollars in wildfire losses statewide the past three years. Some insurers are refusing to write new homeowner policies in fire-prone areas. As a result, the state’s nonprofit insurer of last resort, known as the FAIR Plan, has seen an uptick in coverage of residential properties, including in Sonoma County.
In response, Lara in December banned insurance companies for one year from canceling coverage for people residing in or near areas where the state’s 16 wildfires burned in 2019, including 140,000 policyholders living close to the Kincade fire that ravaged a significant part of north Sonoma County in October.
Seeking long-term solution
Part of the drive for more insurance legislation to protect homeowners has come from local residents such as Santa Rosa’s Abrams. The big concern is without a long-term solution, homeowner insurance will be increasingly harder to get statewide and annual policy premiums more expensive. Furthermore, local home sales could be scuttled, property values lowered and the local tax base diminished.
“It’s much the same way we are expecting from PG&E to harden their grid and adjust to climate change,” said Abrams, who has become an advocate on numerous rebuilding issues, including home insurance matters.
Abrams and Sonoma County Supervisor Susan Gorin - who lost her home in the 2017 Nuns fire - met with Lara’s office to offer input before the fresh insurance legislation was unveiled last month.
The big question is whether the insurance industry will get on board with giving discounts to homeowners who reinforce their houses?
Preliminary indications are the industry is sticking to the position it has had for the last few years: the state of California has kept homeowner insurance rates much lower than elsewhere in the nation and there would be sufficient policy availability if insurers could properly set annual premiums based on individual property risks.
State law, mandated after passage of Proposition 103 in 1998, requires the state Department of Insurance to review proposed rate increases before insurance companies can implement them. In practice, insurers typically have asked the state for an annual homeowner policy price increase up to 6.9%, because any greater amount would trigger a hearing in which consumer advocates could challenge the rate proposal.