Live in California? You May Not be Fully Insured Against Destructive Wildfires

California is experiencing increasingly destructive and deadly wildfires. In 2021, the state saw its largest fire in recorded history. In 2020, the state saw more acres burnt than in any other year. And in 2017 and 2018, the state saw its deadliest wildfires in modern history, killing over 100 people in total. These fires also cost billions in damage, and forced insurance companies to pay staggeringly high payouts to homeowners. One firm estimated that the state’s insurers lost 26 years of profits in those two years alone. (Marris)

In the wake of those tragic wildfire years, many home insurers have significantly raised rates for high-risk areas. Sometimes, they refuse to cover certain regions altogether. The typical homeowner’s insurance bill has tripled since 2017, rising from two-thousand to a staggering six-thousand annually. (Kasler) This might seem like a smart choice for the insurance industry, but it forces residents of California’s most high-risk communities to choose between relocation - which is not feasible or desirable for many residents - and the possibility of losing everything in the next megablaze. 

Many of the state insurers have been dropping customers from high-risk areas, arguing that it’s growing increasingly hard for them to justify offering coverage in places that are most likely to burn. Between 2018 and 2019, the number of homeowners to experience insurance non-renewals rose by 30%. (Fields) In many parts of the state, the risk is deemed so high that insurers won’t even pick up calls from those area codes. And even though legislation is set to take effect this summer which will force insurers to account for homeowners’ fire mitigation efforts, rates are still rising for many residents. (Smith)

Given how many people have had their policies canceled or discontinued, this has been the focus of media scrutiny. But if you’re lucky enough to have homeowner’s insurance that covers wildfire damage in California - or rent from a landlord who does - that still does not mean that you’re fully insured. Standard dwelling coverage only covers the cost of repairing your home. (Frontline Wildfire Defense) If a small spot fire damages your roofing, dwelling coverage will likely pay for repairs. But if your home burns to the ground, as thousands do every year, most standard plans will not pay for the cost of finding temporary housing. For that, you need to purchase supplemental “loss of use” insurance. 

As record-breaking numbers of homes are destroyed in increasingly intense and erratic wildfires, more and more wildfire claimants are realizing the limits of their insurance protection. In the town of Paradise, where the Camp Fire damaged or destroyed 90% of homes in 2018, many residents are still battling for compensation. Those whose homes and businesses were not insured are currently fighting with Pacific Gas & Electric – the utility whose faulty transmission lines are believed to have sparked the fire – for payouts from the company. But even people with insurance are struggling to get the money to rebuild. Randy Hendrix, whose home burnt in the Camp Fire and was insured with Foremost Insurance, was denied additional living expenses despite paying for loss of use coverage. (Johnson) 

In Hendrix’s case, an adjuster with his insurance company had found that the damage on his property was not extensive enough to merit loss of use insurance even though the house was without gas, water or electricity. 

In an interview with KCRA, Hendrix commented: "You have no water, no gas, no electric and ash flying through the house, and it's livable?" (Johnson) 

Hendrix is not the only wildfire claimant battling with insurance companies for a payout. In 2019, Paradise resident Jeanie Webb created a Facebook group for Camp Fire survivors insured by Nationwide, many of whom were struggling to get reimbursement. (Jamali) The group now has over 100 members, many of whom have complained about the painful and traumatic experience of having to itemize their losses when their homes have been reduced to rubble. 

For renters, the situation is even more complicated. Even if their landlord is fully insured against wildfire damage, that insurance does not cover the renter’s property loss unless they themselves have rental insurance, which the majority of renters in California do not. (Murdock) Furthermore, if a lease agreement requires the tenant to own rental insurance and the tenant does not, the landlord can sue the tenant for failure to abide by the lease agreement in the event of a fire, even if the landlord had full coverage. (Miller)

Increasingly cost-prohibitive homeowner’s insurance also presents an indirect cost to renters. In the absence of significant legislation, rates are expected to keep rising across the state. Insurance companies are arguing that rates should be raised even further to reflect the risk projected by climate models instead of observed fire behaviors of the past. (Marris) Increased insurance premiums will likely contribute to the state’s already skyrocketing rent. Renters will continue to get squeezed, and lower- and middle-income homeowners, many of whom live in high risk areas because they are more affordable than coastal cities, may have to leave the state altogether. 

Last year, the World Bank predicted that climate change could displace 200 million people from their homes by the year 2050, leading to a global crisis of climate refugees. (Al Jazeera) Many will come from equatorial regions, some of which will become lethally hot, or from drought stricken agricultural areas in places like Central America. But if wildfires get worse in California (as projected), and fire season becomes year-round, more and more residents, both renters and homeowners, will be forced to relocate. Wildfires - and the economic and human losses they bring - have the potential to create thousands of our very own domestic climate refugees. 

Sources: 

Al Jazeera. Climate change could displace 216 million by 2050: Report. https://www.aljazeera.com/news/2021/9/14/climate-change-could-displace-216-million-by-2050-report#:~:text=World%20Bank%20warns%20'climate%20migrants,if%20urgent%20action%20is%20taken.&text=Climate%20change%20could%20push%20more,the%20World%20Bank%20has%20warned.

Fields, Samantha. California orders insurers not to drop homeowners in wildfire-prone areas. https://www.marketplace.org/2021/09/21/california-orders-insurers-not-to-drop-homeowners-in-wildfire-prone-areas/

Frontline Wildfire Defense. California Wildfire Insurance: Everything You Need to Know 

https://www.frontlinewildfire.com

Jamali, Lily. 2 years after losing their homes in California fire, some are still wrangling with insurers. https://www.marketplace.org/2020/12/11/california-wildfires-camp-fire-insurance-company-claims/ 

Johnson, Brittany. 3 years after the devastating Camp Fire, homeowners still battle insurance companies. https://www.kcra.com/article/camp-fire-homeowners-insurance-companies-wildfire/38177380 

Kasler, Dale. Regulators unveil wildfire safety plan. Will it fix rural California’s insurance crisis? https://www.sacbee.com/news/california/fires/article258142823.html

Marris, Emma. People Deserve to Know Their Houses Are Going to Burn. https://www.theatlantic.com/science/archive/2022/03/wildfire-insurance-california-fair-plan/627065/

Miller, Kaycee. Landlord and Renter Rights After a Wildfire. https://www.rentecdirect.com/blog/landlord-renter-rights-wildfires/

Murdock, Christy. Renters Insurance in California vs. Other States. https://www.rentspree.com/blog/renters-insurance-california