California Wildfires: Are Houses Covered?

California is prone to wildfires, with 769 woodland fires and 1,657 structure fires recorded as of mid-May 2024. This poses a significant risk to homeowners in the state, and many insurance companies have pulled back coverage in wildfire-prone areas or exited the market entirely. As a result, it has become increasingly challenging for Californians, especially those in high-risk areas, to obtain home insurance.

Most standard homeowners insurance policies typically cover fire damage, including wildfires. However, insurance companies may limit or exclude wildfire protection for homes in high-risk areas. The cost of fire insurance in California depends on the location of the home and its historical wildfire risk.

In response to the challenges of obtaining home insurance in California, the state has introduced the FAIR Plan, which serves as a last resort for homeowners struggling to find coverage in the private market. This plan primarily covers losses caused by fire, lightning, internal explosions, and smoke. However, it is important to note that FAIR Plan policies do not include theft or liability coverage, and residents may need to purchase additional insurance to fill in these gaps.

Home insurance in California: what's covered and what's not

Home insurance in California is a complex issue, with many factors influencing what is and isn't covered. Here's a detailed breakdown of what you need to know about home insurance in the Golden State.

What's Covered

Most standard homeowners insurance policies in California will cover fire damage, including damage from wildfires. This coverage includes protection for the dwelling, or the main structure of the home, as well as other structures on the property like detached garages or sheds. Personal property is also typically covered, meaning that your belongings will be protected in the event of a fire. Loss of use coverage is another important aspect, as it provides compensation for living expenses incurred while your home is being repaired or rebuilt after a fire.

In addition to fire damage, standard homeowners insurance in California usually covers vandalism, theft, and certain natural disasters like windstorms. Coverage for medical payments resulting from injuries sustained by someone outside your household on your property is also often included.

What's Not Covered

While fire damage is generally covered, there may be limitations or exclusions for homes located in high-risk wildfire areas. In these cases, insurance companies could limit or exclude wildfire protection from your policy. It's important to carefully review your policy to understand the specifics of your coverage.

Additionally, standard homeowners insurance in California typically does not cover flood damage or damage caused by earth movement, such as earthquakes or landslides. For homes located in high-risk flood areas or areas prone to earthquakes, separate coverage will need to be purchased. The National Flood Insurance Program (NFIP) is a common option for flood insurance, while earthquake coverage can usually be added as an optional policy or rider.

It's also worth noting that standard homeowners insurance may not cover all types of personal property equally. Certain categories, such as jewellery, antiques, and firearms, may have specific exclusions or reduced coverage limits. Be sure to carefully review your policy to understand what is and isn't covered.

Special Considerations for High-Risk Areas

If you live in a high-risk area for wildfires or other natural disasters, obtaining adequate home insurance can be challenging. Insurance companies may deny coverage or charge higher premiums due to the increased risk. In these cases, you may need to explore alternative options, such as the California FAIR Plan, which offers basic fire and earthquake insurance for homes in high-risk areas. However, even with the FAIR Plan, additional coverage may be necessary to fill in any gaps.

To improve your chances of obtaining coverage and reducing your premiums, consider taking steps to fortify your home against wildfires and other disasters. This can include using fire-resistant building materials, creating defensible space around your home by eliminating flammable landscaping, and adding protective features like tempered glass windows and screens over attic vents.

Home insurance in California can be complex, with many factors influencing what is and isn't covered. It's important to carefully review your policy, understand your coverage limits, and be proactive in mitigating risks, especially in high-risk areas. By taking the time to understand your insurance needs and explore all available options, you can ensure that your home and belongings are adequately protected.

The impact of wildfires on insurance in California

Wildfires have had a profound impact on the insurance landscape in California, with insurers pulling back coverage in wildfire-prone areas or exiting the state entirely. This has left many residents struggling to find home insurance, particularly those in high-risk areas. The situation has been further exacerbated by surging climate disasters, government regulations, and supply chain issues.

The challenges faced by homeowners

Homeowners in California, especially those in wildfire-prone areas, are facing significant challenges in obtaining and maintaining home insurance coverage. Many insurance companies have decided to no longer insure homes in these areas, leaving residents with limited options. Those who do find coverage often face steep premium increases, as insurers seek to recoup losses from previous years.

The insurance industry's perspective

The insurance industry in California is navigating a delicate balance between managing risk and ensuring profitability. The state's unique challenges, such as frequent and destructive wildfires, have led to record-high losses for insurers. As a result, they have had to increase rates and restrict coverage to remain solvent.

The role of government regulations and initiatives

The California Department of Insurance has implemented several measures to protect homeowners, including proposing new rules that require insurers to consider homeowners' efforts to reduce wildfire risk when setting premiums. The state has also introduced the FAIR Plan, a last-resort insurance program for homeowners who cannot find coverage on the private market. However, FAIR Plan policies are often more expensive and offer limited coverage.

The impact on insurance costs

The cost of home insurance in California has been significantly impacted by wildfires and other factors. The average annual premium in the state is $1,587, lower than the national average of $2,511. However, premiums can vary greatly depending on location, with homes in high-risk areas facing higher rates. Additionally, inflation and supply chain issues have contributed to rising construction costs, further affecting insurance prices.

Strategies for obtaining coverage

Homeowners struggling to find insurance coverage in California can consider the following strategies:

• Contacting their current insurer to discuss specific property upgrades or risk mitigation measures that may help maintain their policy.
• Taking steps to fireproof their homes, which can make their property more attractive to insurers and potentially earn them discounts on premiums.
• Reaching out to local agents who are familiar with the state's unique insurance landscape and may have access to alternative coverage options.
• Exploring the California FAIR Plan as a short-term solution, recognizing its limitations in terms of cost and coverage.
• Considering an excess and surplus (E&S) carrier, which specializes in insuring high-risk properties but may not provide the same level of financial security as traditional insurers.

How to get insurance in California fire zones

California's dry climate makes it particularly susceptible to wildfires, and the risk of damage to homes is a serious concern for many residents. Most standard homeowners insurance policies will cover fire damage, including that from wildfires, but those in high-risk areas may find their policy limited or lacking wildfire protection.

If you live in a high-risk area and are struggling to secure fire insurance, there are a few options available to you:

• The California FAIR Plan: This is an insurance program for California homeowners who are unable to get home insurance on the private market. It is not state-backed, but instead financially supported by private insurance companies that write home insurance in the state. It is intended as a short-term solution until a property can become eligible for conventional coverage. The FAIR Plan does not include liability or theft protection, and premiums tend to be high (around $3,200).
• Excess and Surplus Lines Insurers: These insurers provide coverage for homes that carriers on the standard marketplace won't take on. They are exempt from the guidelines that traditional insurers must follow when setting and raising home insurance costs, so they may have stricter eligibility requirements and charge higher rates.
• Private Wildfire Insurance: Private insurers may offer higher coverage limits and more comprehensive coverage plans, but they may limit eligibility to high-net-worth individuals.

To get insurance in California fire zones, it is recommended that you:

• Understand your wildfire risk level: Use the California Fire Zone Hazard Map to see your proximity to wildfire zones and determine your risk level.
• Shop around: Contact multiple insurance providers to find out their eligibility requirements and get quotes for coverage.
• Consider a broker: If you live in a wildfire risk area, a local insurance broker may be able to help you find companies that are writing new coverage in that area.
• Act quickly: If your current insurance provider has notified you that they will not be renewing your policy, start shopping for a new one as soon as possible. You will likely have 45 days to find a replacement, and it may take that long to find an affordable option.
• Make your home fire-safe: Take steps to reduce your risk of wildfire damage, such as removing excess vegetation, keeping combustibles away from your home, and using fire-resistant roofing and siding.
• Get a home inspection: Some insurers are requiring inspections and correction requirements before they will insure or renew coverage on a home.
• Contact your local fire department: They may be able to inspect your property, give you a list of corrections, and write a letter attesting to your property meeting fire codes and standards.
• Consider a "non-admitted" insurer: If you can't find an "admitted" insurer that will cover your home, you can try a "non-admitted" or "surplus lines" insurer. These companies are not regulated, but your home will still have some protection if they become insolvent.
• Purchase supplemental coverage: If you have to buy a basic policy, consider adding supplemental coverage to fill in any gaps.
• Review your policy regularly: Conduct an annual insurance check-up to discuss your policy limits and coverage, and be sure to update your policy to cover any home improvements.

The cost of home insurance in California

According to Marketwatch, the average cost of home insurance in California is $1,584 per year, which is lower than the national average of $2,417 or $2,511, depending on the source. However, the cost of home insurance can vary significantly depending on the specific location within the state, as different regions face varying risks of natural disasters such as wildfires, earthquakes, and floods.

The cheapest home insurance provider in California, according to Marketwatch, is Hippo, with policies averaging $1,020 annually. Other affordable options include Liberty Mutual, Farmers, Progressive, Nationwide, and USAA. These companies offer various discounts and endorsements to help lower costs. For example, Liberty Mutual offers discounts for going without filing a claim for a certain period, purchasing a policy online, or opting for paperless billing.

Additionally, factors such as the age and condition of the property can impact the cost of insurance. Older homes, especially those with older roofs, may be more expensive to insure due to the increased risk of damage and higher repair or replacement costs.

To save on home insurance in California, consider comparing rates from multiple providers, as underwriting criteria differ significantly between insurers. Installing protective features, such as fire-resistant roofing and siding or retrofitting your home for earthquake resistance, may also help lower your premiums. Maintaining a good credit score and avoiding filing small claims can also positively impact your insurance costs.

How to save on home insurance in California

Home insurance in California is cheaper than the national average, but there are still ways to save on your premium. Here are some tips on how to save on home insurance in California:

Shop around

Before settling on a home insurance policy, it's worth comparing quotes from several providers. Each home insurance provider has its own guidelines and will set different prices for the same coverage types and limits. By shopping around, you can find the provider that can offer you the lowest premium.

Bundle your insurance policies

If you have insurance with more than one provider, consider bundling your policies. For example, you could bundle your home and auto insurance with one insurance company, which could save you money as most insurers will give you a multi-policy discount to reward your loyalty.

Take advantage of discounts

There are several home insurance discounts that you may be able to qualify for. These include:

• Installing smoke detectors, a burglar alarm or dead-bolt locks: 1% to 3% discount
• Installing a sprinkler system and a fire and burglar alarm: 3% to 7% discount
• Loyalty discounts: about 6% on average after three to five years and 9% for ten years or more
• Bundling a home and auto insurance policy: up to 16% discount
• Disaster-proofing your home with fire-resistant materials: 7% discount
• Paying your 6-month or 12-month premium in full: 7% discount on average

Evaluate your policy and increase your deductible

You can talk to your provider or agent to see if there are optional coverage types included in your policy that are not a good fit for your needs. You may also want to consider raising your deductible (the amount you pay out of pocket for a covered claim). While this means you'll pay more in the event of a claim, it will lower your premium.

Improve your credit score

Unless your home is in a state that prohibits insurers from using your credit-based insurance score to determine premiums, a low credit rating typically leads to a higher premium. If your credit score has recently improved, it may be worth reaching out to your insurance carrier to see if it could help lower your premium.

Keep your roof in good condition

The age, condition, shape and materials of your roof are important considerations for an insurance company when calculating homeowners insurance premiums. You can conduct regular inspections and perform any necessary repairs to keep your roof in good condition. Installing a new roof or retrofitting your existing roof to make it more resilient to storm damage may generate a premium reduction.

File claims sparingly

Filing a homeowners insurance claim can potentially increase your premiums in the future or even lead to a policy non-renewal if you file multiple claims. It's generally not advisable to file a claim for every small loss, especially if the cost to repair is under or close to your deductible limit.

Frequently asked questions