If you live in an area with a high risk of wildfire, insurance may seem like the least of your problems. The chance that your house will burn down due to an uncontrollable natural event is frightening. You don’t want to lose the beautiful home you have spent so much time and money on.
However, it is insurance that will make it possible to move on if your home does burn down. It is one thing you typically could control. Unfortunately, that is no longer necessarily the case. Insurance providers are raising the price of home insurance for many Californians, to the extent that it is becoming unaffordable.
If you’re renting a home in an area at risk of wildfires, you should already have renters insurance. Renters insurance will cover your possessions if they are destroyed in a wildfire. If you have an item that is particularly expensive, renters insurance might not cover it. Check with your insurer whether you need to get scheduled insurance for any of your expensive possessions (including electronics and jewelry).
Why are home insurance prices increasing so much in California? Are there any measures in place to protect California homeowners?
California insurers feeling the heat
Insurance providers are some of the richest corporations in the US. As such, when they hike premiums for people in high-risk areas, it can feel like they are acting opportunistically. Homeowners in these areas badly need insurance and may have little choice but to pay the high prices. However, this is probably not the outcome insurers are hoping for.
The reality is that wildfires in certain parts of California are now all but guaranteed to occur on a regular basis. Wildfires are extremely destructive, leading to the obliteration of entire homes. The payouts required to cover losses are therefore huge. Most insurance providers are unable to factor in these costs no matter how high they price their premiums.
Private insurers do not want Californians to pay high premiums to keep their insurance. Rather, they want people living in the areas with the highest risk to drop their private insurance altogether. This is why home insurance rates in California went up nearly 10% from May 2021 to May 2022. While people in lower risk areas also experienced increases, the number is significantly skewed by high-risk homes.
The major problem is that wildfires are getting worse. Droughts and high temperatures caused by climate change are becoming increasingly severe. Certain parts of California will become uninhabitable due to wildfires. This isn’t something that will go away. Insurance companies understand this better than anyone, considering that their model relies on an accurate assessment of risk. They know that if they continue to insure people in these areas, they are likely to pay every single policy out to the full.
But can they simply drop customers or make themselves unaffordable?
Regulations protect some Californians
Towards the end of September 2022, California implemented a law banning insurers from dropping customers. This came in the wake of the massive wildfires that have devastated the state in recent weeks. The ban is temporary – it requires insurers to preserve residential insurance for a year – but it will give people breathing space as they look for alternatives. Insurers are also limited in the amount they can charge for homeowners insurance.
Aside from the regulations placed on private insurers, California also has the California Fair Plan, an organization providing home insurance to customers who cannot find cover through other insurers. Their plans include wildfire coverage, and more and more people are taking advantage of the organization.
Lowering costs
It is possible to lower costs with some insurers. If you take measures to retrofit your home against wildfire damage, you may be able to get credits or discounts from your provider. However, providers are not required to offer these discounts, especially if they do not believe that any measures will lower the risk of damage.
Whether or not your insurer offers discounts for it, you should consider retrofitting your home against wildfire. There is no guarantee that you will be able to salvage your home in a bad wildfire, but you should do what you can to limit any potential damage.
California homeowners insurance is getting more expensive as wildfires get worse. This is unlikely to change. While insurers are regulated in what they can charge and whether they can drop customers, many Californians are still finding insurance unaffordable.