California is known for many great things, but the past few years have made it infamous in one way. Wildfires have become a common threat, with thousands of acres of land burning every year. Homes and businesses have been destroyed, and lives have been lost. Certain regions are no longer plausible places to live.
This has had a big impact on the insurance industry, and consequently on homeowners. Normally, wildfire damage is covered in your home insurance. However, since insurance is determined and priced based on risk, California insurers can now refuse wildfire cover in especially high-risk regions. In regions with a moderate risk of wildfire, the cost of insurance can be prohibitive.
While the insurance industry has its issues, you cannot really fault it for this reality. Covering wildfires in high-risk regions would cause major financial trouble for insurance companies. The high prices on wildfire cover in regions with moderate risk are not there to make money – it suits insurers more for these customers to eschew wildfire cover altogether.
The good news is that California homeowners may soon have a way to lower the cost of wildfire cover in their homeowners insurance. This is due to new rules put in place by California’s insurance commissioner, Ricardo Lara.
What are these new rules and how will they impact insurance pricing?
Fire Safety for California Homes
In some cases, no amount of preparation is going to save a home from a wildfire. Certain regions are just hit too hard for any home to escape catastrophic damage. But in many other regions, certain security measures will lower the risk of major damage.
When the new laws go into effect, California insurers will have to lower premiums for homeowners who have put these security measures into place. The measures include:
- Installing a fire-resistant roof
- Creating 5 feet of defensible space around the home
- Clear evacuation routes in a neighbourhood
- Removal of vegetation and other flammable debris
These standards have been set to protect California homes against increasingly unavoidable wildfires. Some of these measures are fairly expensive, potentially costing homeowners thousands of dollars. They are unlikely to “break even” with the proposed reduction in insurance prices. However, they should put these measures in place to protect their homes regardless of insurance benefits. Potentially lowered insurance prices will only mitigate some of the expenses.
Roadblocks
While homeowners stand to benefit from the proposed changes to premiums, insurers are not so enthusiastic. To some extent, their resistance is understandable. However, it all comes down to how much of an impact these measures will have on preventing wildfire damage.
Mark Sektnan, vice president of state government relations for the American Property Insurance Association, has stated that they are happy to play their part if the measures are backed by scientific evidence to mitigate the impact of wildfires. If there is no such evidence, they will push back on any price decreases. Since these mitigation measures are grounded in rational bases, price decreases are likely to go through.
Experts have pointed out the importance for homeowners to put these measures into place as soon as possible. Inflation is high and construction materials are becoming more expensive by the day. This has only been exacerbated by the Russia-Ukraine war, which has driven up gas prices and, consequently, the price of consumer goods.
Mitigation efforts are already expensive, and before long prices could become prohibitive for homeowners struggling to make ends meet.
The Future of California Homes
This discourse is all within a context of unsurety regarding the future of California homes. The reality is that wildfires are getting worse, and climate change is driving this. Many California homeowners may be forced to reconsider the viability of their home’s location. The fact that some regions can no longer get wildfire cover at all is evidence that the insurance industry and its regulators have very little confidence in a significant turnaround.
The same kind of discourse is going on in states like Florida, where rising sea levels have made flooding a constant. Homes which are likely to no longer be viable in a few years can no longer be insured, with the state hoping that people choose to move (or buy homes elsewhere).
If you live in a region with a moderate risk of wildfires, you may have to spend big to stay there for the foreseeable future. This is going to be true regardless of whether there are insurance benefits to be had.
