Wildfire Risks Heating Up Homeowners Insurance Market

By Sharon Byrne   |   July 26, 2022

Last week was a big week for Montecito and California in homeowners insurance. At our Board Meeting, we hosted the California Department of Insurance and agents from Brown & Brown and Bridgepoint, who are finding policies for Montecitans.

A Little Background

After the Thomas Fire of December 2017, and the deadly Debris Flow, an emergency moratorium was enacted by the state to prevent insurance companies from canceling policies for up to one year.

In January 2019, Montecitans began receiving non-renewal notices. When they tried to find a new policy, they were shocked by high premium spikes, some as much as 10 times what they had been paying. These policies came with far higher deductibles, less structure coverage, and less replacement costs coverage.

As more reports of loss of coverage came in, we mapped the addresses. Nearly all were in the Very High Wildfire Risk Severity Zone, above highway 192.

We connected with our state reps and other communities and learned this was happening all over California.

That led to meeting with the California Insurance Commissioner, Ricardo Lara, in Montecito in 2019, and we proposed ideas to him to help solve this issue. He’s putting some of those into legislation now, with our support, like taking into account community-wide hardening efforts, such as those undertaken by Montecito. We also asked for an increase in FAIR Plan coverage. 

Changes Implemented by Insurance Commissioner Lara

1. Insurers are now required to provide 75 days warning before issuing a non-renewal notice to give you more time to find replacement coverage. The previous window was 30 days.

2. California FAIR Plan coverage has been increased to $3 million from $1.5 million. The FAIR Plan has also been ordered by the Insurance Commissioner to provide discounts and more comprehensive coverage, but they’re not complying.

Companies Still Writing Homeowners Policies in Montecito

Lloyds (rare)
State Farm

Brown & Brown of Carpinteria has had success with connecting Montecitans to replacement policies. You can call Lisa Blackwell with Brown & Brown at (805) 690-2679. 

The California FAIR Plan’s new $3 million cap translates to $2.6 to 2.7 million in actuality. There are products that can be added to the FAIR Plan to provide more ‘wraparound’ coverage. Difference in Conditions (DIC) policies provide coverages that are not available through the FAIR Plan, such as water damage, theft, and liability coverage. They are designed to combine with the FAIR Plan policy to provide you with coverage similar to that in a comprehensive homeowners policy. You can obtain up to $7.5 million in coverage with First Cap thru Seaview and Delos. You can call Danny Daniel at Bridgepoint for help with procuring one of these policies at (619) 432-4567.

The very next day, we attended the eight-hour hearing on the FAIR Plan, held by the Insurance Commissioner, who stated at the beginning of the investigative hearing by stating, “The FAIR plan is not meeting its mission of insuring access and availability of insurance for those Californians who need it.”

Victoria Roach, the president of the California FAIR Plan responded, “The California FAIR Plan is committed to providing consumers with basic property insurance when that insurance is not available in the normal market.” This is the policy of last resort, when you can’t get insurance either on the voluntary or surplus markets. 2.5% of policies issued in California are FAIR Plan, but it’s tripled in the past two years. Homeowners in high wildfire risk zones are the FAIR plan’s main customers, and there are plenty of them in Montecito. 

Huge Gap: The FAIR Plan hasn’t been paying smoke damage claims. A speaker shared that after the CZU Lightning Complex hit, her home was heavily smoke-damaged. She filed a claim. The FAIR Plan told her to Swiffer the house and sent her $1,100. The damages amounted to more than $200,000. They insert sneaky language in the policies to separate fire from smoke damage, and then don’t cover smoke. The regular insurance market does this too. California law does not allow this separation, but many insurance policyholders don’t know this. Be sure to check your policy for smoke damage coverage.

Commissioner Lara has also been busy issuing moratoriums in areas affected recently by wildfires, including our county. On July 12, he ordered insurance companies to preserve residential insurance coverage for more than 85,000 policyholders affected by fires in Santa Barbara County and Monterey County after Governor Gavin Newsom issued emergency declarations this month. This shields those living within the perimeters or adjoining zip codes of the Alisal Fire from insurance non-renewal or cancellation for one year from the date of the Governor’s July 1 declaration, regardless of whether they suffered a loss. This same move was made for our area, after the Thomas Fire.

Who Runs the FAIR Plan?

The FAIR Plan is governed by a 15-member board that contains nine representatives from insurance carriers, brokers, and agent representatives, and one residential representative. Only the carriers have voting rights.

The Governing Committee has failed to upgrade the FAIR Plan in response to changing conditions, so the Insurance Commissioner has engaged his powers of oversight. He cannot force them to act, but he can create pressure to respond to changing conditions: 

In 2019, Commissioner Lara ordered the FAIR Plan to offer a comprehensive policy more akin to a traditional homeowners policy, in addition to fire-only coverage, so a homeowner who could not obtain similar coverage from a standard insurance company could get this comprehensive coverage from the FAIR Plan. The FAIR Plan has yet to comply. Difference-In-Coverage (DIC) plans, which are right now your only option to close gaps in coverage, can triple your premium costs.

That order led to a court challenge by the insurance companies that manage the FAIR Plan. They lost, so last September the Insurance Commissioner directed them to submit a revised Plan of Operations within 30 days on how they will make more comprehensive coverage available, rather than fire-only.

Insurers are now required to provide 75 days warning before issuing a non-renewal notice to give you more time to find replacement coverage.

New Regulations Coming

These will be adopted soon, and could really help Montecito:

1. Require insurers to factor consumers’ and businesses’ wildfire safety actions into their pricing. Hardened your home? Cleared defensible space? That should be taken into account in your policy.

2. Force insurers to reveal your ‘wildfire risk score’ to you. They assign this to your property and use it to decide whether to issue you a policy. We’ve seen people unable to get a policy when their neighbor across the street had no issue. Having access to your wildfire risk score could provide insight into why you’re getting denied a policy.

3. Consumers would have the right to appeal their risk score. 

One of the pieces of this regulation we’re most excited about: forcing insurers to take community-wide hardening into effect. Montecito has been at the forefront of this, thanks to Montecito Fire Protection District. We were the first in our county to adopt a Community Wildfire Protection Plan. Montecito Fire regularly clears brush, via chipping programs and put sheep on the mountains to reduce fuel loads. They have recently conducted a fire evacuation study, to be shared with the public on July 22. They post up community warnings on Red Flag days. They’ll also consult with you for free on how to clear defensible space around your home, protect yourself from traveling embers, and materials to use to harden your home. They conducted last week’s community meeting to prepare for serious fire season.

If these community-wide efforts are taken into account, insurers should find Montecito a less risky community for fire to offer their products in. 

Let’s hope so.

Sharon Byrne is the Executive Director of the Montecito Association


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