California Wildfires: Are Residents Covered?

Wildfires in California have become more frequent and severe in recent decades, causing devastating damage to communities. As a result, insurance companies are increasingly reluctant to offer coverage for new homes and businesses in the state, citing the high risk of wildfires and the rising cost of rebuilding. This has left many residents and businesses struggling to find insurance coverage.

Most standard homeowners insurance policies will cover fire damage, including damage from wildfires. However, for those living in high-risk areas, insurance companies may limit or exclude wildfire protection from their policies. As a result, residents in these areas may need to turn to alternative options, such as the state's Fair Access to Insurance Requirements (FAIR) Plan, which is typically more expensive and provides less coverage than standard policies.

The availability and affordability of insurance in California, especially in high-risk areas, have been declining in recent years. This has led to concerns among residents about their ability to recover from wildfire damage and the potential impact on the property and business market.

Home insurance coverage for wildfires

Dwelling Coverage

Dwelling coverage pays for the cost of rebuilding or replacing the physical structure of your home and any attached structures, such as a garage or deck. It is important to ensure that you have enough dwelling coverage, as the cost of rebuilding your home after a wildfire can be expensive. Check your coverage limits regularly and consider purchasing endorsements or increasing your coverage limits if needed.

Other Structures Coverage

Other structures coverage provides financial support for rebuilding or replacing unattached structures on your property, such as sheds, detached garages, fencing, and pool houses. The amount of coverage for other structures is typically a percentage of your total dwelling limit, so ensure you have sufficient coverage if you have multiple detached structures.

Personal Property Coverage

Personal property coverage pays to repair or replace your personal belongings that are damaged or destroyed in a wildfire. This includes appliances, clothing, furniture, and electronics. Review your personal property coverage limits to ensure they are sufficient to cover the cost of replacing your items. Creating a home inventory can help you determine if you have enough coverage.

Loss-of-Use or Additional Living Expenses Coverage

This coverage, also known as additional living expenses, pays for the costs of temporary housing, meals, and other expenses incurred if you are displaced from your home due to a wildfire. It covers expenses such as hotel stays, restaurant bills, pet boarding, and laundry services. Loss of use policy limits are typically a percentage of your dwelling limit.

Coverage for Landscaping

Home insurance may offer limited coverage for plants, shrubs, trees, or lawns damaged by a wildfire. However, there may be special limits or exclusions in your policy, so it is important to review your policy details to understand the extent of coverage for landscaping.

Exclusions and Limitations

It is important to note that coverage for wildfires may be limited or excluded in high-risk areas. Some insurers may not sell homeowners policies or charge higher premiums in areas where wildfires are common. Additionally, your insurance company may request that you take proactive measures to mitigate the risk of wildfires, such as using non-combustible materials for siding, decking, and roofing.

Obtaining Coverage in High-Risk Areas

If you live in a high-risk wildfire area and are unable to obtain coverage from private insurance companies, you may be able to apply for your state's Fair Access to Insurance Requirements (FAIR) Plan. The FAIR Plan is typically a last resort option, as it may be more expensive and have lower coverage limits. You may also consider surplus or excess line carriers, which are exempt from standard insurance guidelines and can charge higher rates.

Condo insurance coverage for wildfires

If you own a condo in California, the threat of wildfire damage is a serious concern. Fortunately, most condo insurance policies will cover wildfire damage, helping you repair or rebuild your home and replace your belongings. Here's what you need to know about condo insurance coverage for wildfires:

Interior Walls Coverage

Depending on the type of master policy your HOA has in place, you may be covered for specific items inside your condo if they are damaged in a wildfire. An "all-in" master policy typically covers appliances, carpets, electrical, and plumbing. In contrast, a "bare walls" policy will not cover anything inside the unit's walls. With interior walls coverage, you can repair or replace items within the walls of your condo that aren't covered by the HOA master policy.

Personal Property Coverage

Personal property coverage in your condo insurance policy allows you to recover the cost of replacing or repairing personal items like electronics, furniture, appliances, and jewellery damaged in a wildfire. It's important to note that your HOA's master policy will not cover your personal property, even if it is an "all-in" policy or the wildfire destroys the entire building.

Additional Living Expenses Coverage

If you are displaced from your condo due to a wildfire, additional living expenses coverage will help cover expenses like hotel stays, restaurant meals, pet boarding, and laundry services. This coverage is crucial for Californians, as it allows them to submit a claim even if the wildfire does not reach their condo but they have been asked to evacuate.

Understanding Your Condo Insurance Policy

When reviewing your condo insurance policy, pay attention to the coverage limits and deductibles. Your policy will cover damages up to the specified limits, and you will be responsible for any deductibles. Additionally, certain items, such as collectibles, money, and personal records, may have sub-limits, so it's important to carefully review your policy or consult your insurance provider for clarification.

Finding Condo Insurance in Wildfire Areas

Obtaining condo insurance in high-risk wildfire areas can be challenging. Insurance companies may charge higher premiums, increase deductibles, or impose coverage restrictions. If you're struggling to find affordable coverage, consider shopping around and working with an independent insurance agent familiar with the local market. Remember that condo insurance is essential to protecting your home and belongings in the event of a wildfire.

Renters insurance coverage for wildfires

Renters insurance typically covers damage to personal property caused by wildfires, including damage caused by smoke and water used to extinguish the fire. This includes damage to belongings inside a car. However, renters insurance does not cover fire damage to the rented unit or building, as this is the responsibility of the landlord or building owner.

In the case of temporary displacement due to wildfire damage, renters insurance may also cover additional living expenses, such as hotel stays, meals, and other services. This is known as "loss-of-use coverage" and is usually limited to a certain percentage of the policy's dwelling coverage.

It is important to note that renters insurance does not cover a roommate's property unless they are listed as one of the policyholders. Additionally, renters insurance typically excludes coverage for car damage caused by wildfires, which would be covered under comprehensive auto insurance.

When purchasing renters insurance, it is essential to review the policy's coverage limits, deductibles, and exclusions to understand the extent of protection provided in the event of a wildfire.

Difficulty finding insurance coverage in California

California's insurance industry is in a state of crisis, with many residents struggling to find and maintain insurance coverage for their homes and vehicles. This crisis is a result of a combination of factors, including the increased frequency and severity of wildfires, the COVID-19 pandemic, and the actions of insurance companies themselves.

Wildfires

In recent years, California has experienced a significant increase in the number and intensity of wildfires, with the issue worsening annually. Wildfires have always been a natural part of the state's forest ecosystems, but human activity, climate change, and drought conditions have exacerbated the problem. More than 1.2 million homes in California are now at moderate or high risk of wildfire damage, and this risk is expected to continue to grow. As a result, insurance companies have become increasingly reluctant to provide coverage for homes in high-risk areas.

The COVID-19 Pandemic

The COVID-19 pandemic also played a role in the insurance crisis. In March and April 2020, stay-at-home orders led to significantly reduced traffic on California's roads, lowering the risk of accidents. In response, California Insurance Commissioner Ricardo Lara ordered insurance companies to refund a portion of premiums to policyholders, totalling $2.6 billion in returns. Additionally, the commissioner refused to approve any rate increases for automobile insurance providers for most of 2022.

Actions of Insurance Companies

Insurance companies have been accused of contributing to the crisis by limiting the number of new policies they offer and increasing premiums. Some companies have "hidden" from customers, making themselves harder to contact because they cannot charge the rates they want. They have also cut back on advertising and restricted the ability of insurance agents to sign on new customers. In some cases, insurance companies have left the California market entirely or restricted their coverage to lower-risk areas. As a result, many residents have been forced to turn to the state's FAIR (Fair Access to Insurance Requirements) Plan, which offers limited coverage and higher premiums.

Tips for Finding Insurance in California

For those struggling to find insurance coverage in California, here are some tips:

• Start looking early: Don't wait until your current policy lapses to start searching for new coverage. The process of getting insurance can be time-consuming, especially if you need to go through the FAIR Plan.
• Know your options: Research different insurance companies and compare their rates and coverage options. Consider using an independent insurance broker who can help you find options and navigate the complex insurance landscape.
• Be proactive with your current insurance: If you already have insurance, consider putting your payments on auto-pay and avoiding making small claims. Maintaining continuous coverage may be more cost-effective than letting your policy lapse and searching for new coverage.
• Make your home less risky: Take steps to reduce the risk of wildfire damage to your home, such as creating defensible space, using fire-resistant roofing and siding, and covering openings to your home. These measures may help lower your insurance premiums.

California's FAIR Plan

The California Fair Access to Insurance Requirements (FAIR) Plan is an insurance program for California homeowners unable to get home insurance in the private market. It is not a government-backed program but is instead financially supported by the state's private home insurance companies. The FAIR Plan was established in 1968 to provide insurance coverage to homeowners in high-risk areas, including those in fire zones or along earthquake fault lines.

The FAIR Plan is a last resort and is intended to be a temporary solution for homeowners who need hazard insurance in California. Applicants must demonstrate that they have been denied coverage from the private insurance market multiple times. The FAIR Plan covers less than 3% of residents, meaning over 97% of Californians have a competitive option for insurance.

The FAIR Plan covers owner- and tenant-occupied buildings, seasonal homes, condos, and rental properties. It provides basic fire insurance, including coverage for dwellings and personal property in the event of fire, lightning, internal explosions, and smoke damage. Importantly, earthquake coverage must be added as an endorsement from the California Earthquake Authority.

The FAIR Plan can be modified with endorsements, but this increases the cost of coverage. These endorsements include:

• Other structures coverage
• Fair rental value coverage
• Dwelling replacement cost coverage
• Personal property replacement cost coverage
• Ordinance/law coverage
• Vandalism and malicious mischief coverage
• Debris removal coverage
• Inflation guard protection
• Plants, shrubs, and trees coverage
• Outdoor radio and TV equipment, awnings, and signs coverage
• Improvements, alterations, and additions coverage

The FAIR Plan is increasingly expensive, with an average policy cost of $3,200 per year, significantly more than a typical home insurance policy in California.

Frequently asked questions