You have insured your home or business for years against damage, fire and theft. Perhaps you are in a open space area surrounded by brush; maybe your building is in a high-density commercial zone.
You plan on renewing your annual policy with the carrier you have had for years and are shocked to discover that your policy is no longer available for renewal. What happened? You’ve never filed a claim of any kind — Why are you being terminated?
You’re not alone — Thousands of policy owners throughout California are facing a big shock when it comes to their fire policy — either a large increase in premiums (often north of 30%) or outright cancellation all together.
Over the past few years, several large fire disasters up and down California have led to unprecedentedly large payouts, dramatically impacting insurer’s bottom lines.
Many policy owners think “I’ve paid every year and never filed a claim — Why should I be penalized?” However, when it comes to property claims, your premiums are actually going to pay for everyone else that suffers a loss in a calendar year. In recent years, many large insurers are paying out twice in claims what they take in on premiums, eating up reserves and hurtling them towards insolvency.
To minimize their own risk for these large payouts, many carriers are simply choosing to no longer insure property in high-risk zones. Rural areas, brush-filled canyons and previous fire zones are now being flagged as too high of a danger to insure.
It’s not just obvious open-space property being rejected for coverage: One of our brokers has a client with a large office building in a well-developed urban core. However, since the property backs to a brush-covered hillside and the area is prone to dangerous wind events, their insurer has elected to no longer cover this client.
The California State Insurance Commissioner’s office recently released new data documenting the fact that almost 350,000 policy holders have been dropped by their insurance carrier in the last four years.
So what can you do? If your existing carrier will renew your policy as is with ideal coverages and deductibles, even if it means an increase in premium, the recommendation is to stick with your current coverage. In most circumstances, a traditional fire protection policy by a mainstream carrier will offer the best options for coverage and replacement value.
You have a time cushion as well: In California, state law says no carrier can drop you for at least a year if you are in or near an area where a recent catastrophic fire has occurred. It’s not much, but this time could give you the breathing room you need to figure out your options.
What if no traditional carrier will cover you? According to a recent report in the Sacramento Bee, “getting dropped by an insurer in fire country can be catastrophic for homeowners. Often they can’t find replacement coverage from traditional carriers and have to buy insurance from one of two alternative sources: a ‘surplus lines’ company whose rates aren’t regulated by the state, or the California FAIR Plan, the state’s “insurer of last resort.” A total of 21,848 Californians bought FAIR Plans for the first time last year.”
Unfortunately, both the ‘surplus lines’ policies and FAIR plans usually come with much higher premiums and less than ideal coverage and deductibles than a traditional carrier — Even according to the California FAIR plan web site, it is an “insurance of last resort” — But, at least you have some level of coverage. For example, a FAIR plan policy may only cover up to $1.5 million in losses, which is not an out of the realm of possibility for cost to replace a residential property or commercial building and all necessary hardscape and landscape.
Regardless your current policy coverage and expiration date, as we enter into fire season it’s a good idea to talk with your broker for a status check and to plan proactively for any changes that may be coming down the road — You’ll be glad you did!