How fire insurance works and what the future looks like after Caldor

Rich Allen

SOUTH LAKE TAHOE, Calif. — California’s insurance landscape continues to evolve as devastating wildfires like Caldor and Tamarack become the rule instead of the exception.

The new-found prevalence of substantial fires is only increasing liability, leading to rising premiums and, for some carriers, an outright refusal to cover fire damage. Insurance options still exist but the issue is, and will continue to be, matching the price point.

“California is going to be hard for a while,” Christy Lyons of the Fromarc Insurance Agency said. “Many, many carriers will not write in wildfires anymore. They don’t want that risk.”

She added that the carriers still offering fire coverage have such high premiums that customers are taking deductibles in the $2,500 range.

With fewer and fewer options, more property owners are being forced to turn to the California FAIR Plan, a self-proclaimed “last resort” insurance for fire coverage that was created by the state in the 1960s. It ensures access to some form of coverage for all property owners in California, but at a price Lyons said could be double or triple what a policyholder whose insurance dropped their fire coverage used to pay.

FAIR also only covers fire, lightning, internal explosion and smoke with added coverage for vandalism or malicious mischief and events ranging from windstorm, hail, even volcanic eruptions that all increase the premium. It doesn’t offer traditional homeowner’s insurance, requiring customers to seek out an additional plan with its own premium.

According to Lyons, Nevada has no safety-net government plan. Non-admitted carriers, or insurance providers not approved by the state, provide coverage for fires but also run into the pricing issue.

So after navigating the maze of expensive and unavailable policies, what do policyholders gain?

What the insurance covers

Other than typical damage reimbursement, some insurance policies include coverage for loss of use and additional living expense, which can help displaced policyholders pay for temporary living arrangements, food costs, storage and even furniture rental, according to an Aug. 18 news release from California Department of Insurance Commissioner Ricardo Lara.

“Wildfires are devastating both to homes and people’s lives, even if you don’t suffer property damage,” Lara said in the release. “Residents who have been evacuated should contact their insurance agent or insurance company to find out what their renters’ or homeowners’ policy covers and other resources that may be available to them while the mandatory evacuation orders are in place.”

Some policies also include a civil authorities clause, which replaces lost income if a government mandates a business be evacuated due to a natural disaster. Lyons said reimbursement varies by carrier and some require a deductible payout.

Last year’s Senate Bill 872 instituted a requirement that homeowners’ insurance policies that cover wildfire provide at least two weeks of additional living expense coverage with extensions for good cause, regardless of property damage.

Lyons recommended that insurance customers keep inventory of their belongings before a fire, through videotaping, receipts, etc., and keep their agent informed on new projects, like remodels. SB 872 implemented groupings for inventory reporting so property owners can cluster things like clothing, food items and books into categories, streamlining the process.

Lyons added that customers should know what their policies cover before incidents like the Caldor Fire occur.

“Out of sight, out of mind,” Lyons said. “A lot of people don’t want to be educated about their insurance. They just pay it. I would just encourage people to talk to their agents.”

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