Dan Miller & Ed Scofield: Affordability and availability of homeowner’s fire insurance vital for community
Dan Miller and Ed Scofield
As District II and District III supervisors, we have seen many issues come before the County that have strong pull-strings that impact our community, whether professionally, personally, economically or emotionally.
It is not too often that we see an issue that can have a lasting impact on broad swaths of our community, and that impact all aspects like the affordability and availability of homeowner’s fire insurance.
The Governor’s Commission on Catastrophic Wildfire Cost and Recovery warns that if it’s not a crisis, “we are marching steadily toward a future where home insurance will be increasingly unavailable and/or unaffordable for many in the wildland urban interface in California.”
With a crisis looming over us in Nevada County, we are taking a number of steps to a) understand what the County can do; and b) understand what you can do if you get dropped by your insurance carrier. But before we outline potential action steps that can be taken, it is important to understand why this is happening and the context surrounding the insurance industry in California.
First, it is important to understand how homeowner’s insurance works. Insurance companies can be broken down into two types in California: Admitted and Non-Admitted. Admitted insurance companies are subject to state regulations and must have rate increases of 7% or above approved by the Insurance Commissioner; whereas non-admitted insurance carriers are not subject to state regulations in the same regard. For example, AAA and State Farm are admitted carriers, whereas Lloyd’s of London is a non-admitted carrier.
Second, how insurance works is relatively simple. A company will evaluate the risk, or costs associated with whatever insurance they are providing by looking back at the last several years of claims received and paid out. This is then taken into account with future cost projections, which is used to establish a rate to cover the estimated cost of the risk and to ensure a profit is obtained. Those profits are then reinvested. Included within that rate is also a catastrophic premium component that builds up over time to be used by the carrier to cover the costs of a catastrophic event like an earthquake, nuclear disaster or in our case — a major wildfire.
Historically, home insurance in California has been approximately 35% below the national average with risk models considering wildfire as an attritional risk rather than catastrophic. However, after the 2018 Camp Fire, it became apparent to many insurance companies that this evaluation is inaccurate, with the City of Paradise almost being entirely destroyed. In fact, Merced Property and Casualty Co., who insured many of the homes in Paradise became insolvent when it could not pay the $64 million in claims resulting from the fire.
The reality is that the risk associated with wildfire and homeowner’s insurance in California is so great that insurance companies simply can’t cover the costs associated with a catastrophic wildfire like the Camp Fire. This is why insurance companies are beginning to issue nonrenewal notices and/or even pull out of the area altogether. Like any other for-profit entity, insurance carriers are making a business decision on where and how they provide coverage.
So what can we do about it? Let’s start with what we at the County are doing and then end with what you can do.
First, District II Supervisor Ed Scofield has joined the California State Association of Counties Resiliency Advisory Board to serve as a forum for counties to focus on topics related to emergency response, recovery and resiliency. In tandem, District III Supervisor Dan Miller has been appointed to the Representatives of California’s Rural Counties Board of Directors Ad Hoc Advisory Committee on Homeowner’s Insurance to review issues surrounding the availability and affordability of homeowner’s insurance coverage in rural areas. Additionally, the Board of Supervisors submitted a letter on the availability and affordability of homeowner’s insurance to the State Insurance Commissioner on May 28, 2019. In that letter, we outlined the importance and need for County and local governments to be a part of the conversation on how to best manage the risks and costs associated with wildfire so that our homeowners are not left in financial jeopardy.
Other policy areas that we will be examining include (1) extending the minimum time required to provide a nonrenewal notice in order to allow homeowners adequate time to find supplemental homeowner’s insurance if they are dropped, (2) promote the ability for homeowners to pay their insurance premiums through monthly payment installments to ease the financial burden placed on homeowners due to high premiums, (3) improve and better leverage the Fair Access to Insurance Requirements (FAIR) Plan, which we explain in more detail below, and (4) promote increased transparency on risk modeling that includes uniform standards that factor individual homeowner fire mitigation efforts, neighborhood and regional fire mitigation activities.
But the biggest question is, what should folks do if they receive a notice of nonrenewal?
Well you can take a couple of actions. First, contact the Department of Insurance at 1-800-927-4357 or go to http://www.insurance.ca.gov and file a complaint. The department can review your insurance policy and identify whether your insurance carrier is an admitted insurance carrier or not, and what state insurance rules and regulations they are subject to. The department’s website has a wealth of resources on how to find and obtain insurance as well as contact information for insurance agents and brokers.
A last resort option for homeowners who cannot obtain homeowner’s insurance is the California FAIR Plan mentioned above. The FAIR Plan is an insurance association contributed to by all admitted insurance companies to ensure the availability of basic property fire insurance to individuals who own property in the State of California who, for reasons beyond their control, are unable to obtain insurance. The FAIR Plan was created by the State Legislature in 1968. Each member insurance company participates in the profits, losses and expenses of the plan in direct proportion to their market share within the state. You can learn more about the California FAIR Plan at http://www.cfpnet.com.
Dan Miller represents District 3 and Ed Scofield District 2 on the Nevada County Board of Supervisors.
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