Is Fire Insurance Mandatory In California


Will Residents See Their Insurance Rates Go Up As A Result?




Several structures are destroyed annually as wildfires continue to rage in many parts of California. Thanks to increased wildfire activities across the state, residents are finding it harder to obtain and keep home fire insurance in California. This is because a rising number of insurance companies aren’t renewing policies for consumers who reside in areas they perceive too risky to cover. The state estimates that over a million California homes are deemed high risk for wildfires.
According to a report from the State’s Department of Insurance, California homeowners’ complaints about non-renewal of their policies multiplied threefold between 2010 and 2016, and complaints about premium hikes also increased by 217% within the same period.
California homeowner complaints about being dropped from their plans increased threefold from 2010 to 2016, and complaints about premium hikes increased by 217%, reported Newberry, citing a California Department of Insurance report. The California Insurance Commission stated in the 2019 general report that there’ll be more rate increases and more policies dropped, especially in high-risk areas.



How Insurance Companies Assess Fire Risk

According to fire insurance California law, insurance companies are expected to submit a rate filing report that documents the losses they’ve experienced and also what they expect to pay due to such losses.
Insurers in California make use of a system called FireLine from Verisk Analytics to assess the potential risk to insured properties. The system considers three factors (fuel, slope, access) when determining the fire risk to a property. Insurance companies can now tell which homes within a block are more susceptible. As a result, some individuals have seen their rates decreased while others have seen their rates sky-rocket.
Furthermore, the state of California is a highly competitive marketplace. If an individual is dropped by their current insurer because their area is considered too much of a risk, they can seek coverage from other numerous that offer fire insurance. Residents of extreme high-risk areas can obtain bare-bones fire coverage via the State’s FAIR plan.
is fire insurance mandatory in california



The Legislative Rescue

With the insurance crisis resulting in widespread disruption across the state, California regulators introduced legislation in February 2020 that would force insurers to provide coverage in areas where property owners and communities have hardened their structures against wildfire risk. So, is fire insurance mandatory in California?
Insurance Commissioner, Ricardo Lara stated that AB 2367 is a necessity to halt the tide of homeowners’ insurance terminations in the wake of claims amounting to billions of dollars from a series of deadly and destructive fires.
The bill would require the state to create standards for reducing fire risks. Insurance companies would then be mandated to provide coverage to property owners who’ve met and maintained those standards and reside in areas where the communities have equally stepped up. Assemblywoman Lorena Gonzalez, D-San Diego, the bill’s co-author said that this legislation will only affect existing structures and doesn’t encourage new developments in high-risk zones.


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Hardening Your Home Works

Experts believed that community-wide programs and home hardening can significantly reduce the risk. Studies suggest that homes built after 2008, when strict building codes were introduced are far more likely to withstand the Camp Fire than older homes. This building code includes fire-resilient roofs and sliding amongst many other things.
The State Governor, Gavin Newsom in the 2020 budget proposal included $100 million to help homeowners and communities retrofit properties to meet the 2008 building codes. Several residents, particularly those residing in rural California have lost their policies as the insurance industry pulled back in response to the $25 billion in wildfire claims between 2017 and 2018.
In most cases, these residents have been forced to seek insurance coverage from unregulated carriers, including Lloyd’s of London or the California FAIR Plan. Though the FAIR Plan is subject to rate regulation, it provides only bare-bones coverage, which means that homeowners have to pay for additional “wrap-around” insurance to cover damages like theft.