California Wildfires: Insured Or Not?

Wildfires are a growing concern for Californians, with the state experiencing an average of 708,000 acres of land burned between 2009 and 2018, an increase of 110% from the previous decade. As a result, the availability and affordability of fire insurance in the state have become significant issues. Standard homeowners insurance policies typically cover fire damage, including wildfires. However, for those living in high-risk areas, such as near canyons or forested regions, obtaining adequate coverage can be challenging. Some insurance companies may deny coverage, increase premiums, or implement specific wildfire exclusions in policies for homes in these areas.

In response to the increasing frequency and severity of wildfires, insurance companies have taken various approaches to managing their risk. Some have stopped writing new policies in high-risk areas, while others have become more selective about the homes they insure. As a result, many Californians have turned to alternative options, such as the state-sponsored FAIR plan, which offers up to $1.5 million in coverage for structures and their contents. However, this may not be sufficient for full replacement in the event of a total loss.

To ensure adequate coverage, it is essential for Californians to review their policies, understand their coverage limits, and consider additional endorsements, such as extended replacement cost coverage or guaranteed replacement cost coverage. Taking proactive steps to reduce fire and smoke damage, such as using fireproof materials and creating defensible spaces, can also help mitigate the impact of wildfires.

Home insurance in California: what's covered?

Home insurance in California can cover a range of risks, but it's important to shop around and understand what is and isn't included in your policy. While fire damage is typically covered, some policies may exclude wildfire damage if you live in a high-risk area. Here's a breakdown of what's typically covered by home insurance in California.

Dwelling Coverage (Coverage A)

This protects the structure of your home, including the roof and walls, as well as attached structures like a porch. It provides financial support for rebuilding or replacing your home if it's damaged or destroyed.

Other Structures Coverage (Coverage B)

This covers detached structures on your property, such as fences, sheds, and detached garages. It usually provides coverage for up to 10% of your total dwelling limit.

Personal Property Coverage (Coverage C)

This covers your personal belongings, including furniture, clothing, and electronics. Certain valuable items like jewellery, art, and collectibles may have specific limits, so you may need to purchase additional coverage.

Loss of Use Coverage (Coverage D)

Also known as additional living expenses coverage, this helps cover the costs of temporary housing, hotel stays, meals, and other expenses if you can't live in your home while it's being repaired or rebuilt due to a covered loss.

Personal Liability Coverage (Coverage E)

This protects you financially if you're legally responsible for another person's injuries or damage to their property.

Medical Payments to Others (Coverage F)

This covers reasonable medical expenses for people who are accidentally injured on your property.

Additional Coverages to Consider

Depending on your specific needs and location, you may want to consider adding extra protection to your policy. Some additional coverages to consider in California include:

• Flood insurance: Flooding is typically not covered under standard homeowners insurance.
• Umbrella policy: This can provide additional protection if you exceed your personal liability coverage.
• Sump pump coverage: Sewage back-up or sump pump overflows are usually not included in standard coverage.
• Earthquake insurance: Californians may be able to obtain earthquake insurance through the California Earthquake Authority.

It's important to carefully review your policy, as coverage may vary, and some perils may be excluded. Additionally, keep in mind that home insurance is not required by law in California, but if you have a mortgage, your lender will likely require it.

What to do if your insurance company cancels your policy

If your insurance company cancels your policy, don't panic. Here are some steps you can take to address the situation:

• Review your policy documents: Carefully review your insurance policy documents, including the terms and conditions, to understand the reasons for cancellation. Look for any specific provisions or clauses that may apply in your case.
• Contact your insurance company: Get in touch with your insurance provider to discuss the cancellation. Ask for clarification on the reasons for cancellation and see if there is any room for negotiation or reconsideration. Provide any additional information or context that may impact their decision.
• Update your information: Ensure that the information your insurance company has on file for you is up to date and accurate. This includes your contact details, personal information, and any other relevant details.
• Seek alternative options: If the cancellation stands, start exploring alternative insurance providers. Shop around and compare different companies, their coverage options, and their rates. You may need to look beyond traditional insurers and consider specialised providers or state-sponsored plans, such as California's FAIR Plan.
• Consult with experts: Consider consulting with insurance brokers or agents who have experience in high-risk areas. They may have access to insurers that you might not find on your own and can help you navigate the process.
• Understand your rights: Familiarise yourself with your rights as an insured individual. Each state has an insurance commission or division that oversees insurance companies and protects consumers. Reach out to your state's insurance commission for guidance and support.
• Address any issues: If there are specific issues that led to the cancellation, such as missed payments or non-disclosure of information, take steps to address them. This may involve providing additional documentation, making necessary disclosures, or taking corrective actions.
• Appeal the decision: If you believe the cancellation is unfair or unjustified, you may have the right to appeal the decision. Contact your insurance company's customer support or ombudsman to initiate the appeal process.
• Seek legal advice: If you feel that your rights have been violated or the cancellation was unlawful, consider seeking legal advice from a qualified professional. They can guide you through your options and help protect your interests.

How to get insurance in a high-risk area

Getting insurance in a high-risk area can be challenging, but it's not impossible. Here are some tips on how to get insurance if you live in a high-risk area:

• Shop around and get multiple quotes: Don't give up after being rejected by a few insurance companies. Gather quotes from a large number of providers to explore all your options and get the best deal available.
• Work with an independent licensed insurance agent: An agent familiar with your area can help you find the best options based on your specific situation and may connect you with specialty insurers.
• Lower your risk profile: Find out what factors are causing insurers to deem you high-risk. For example, if your property is considered high-risk due to a pending renovation, you can keep the high-risk policy until the renovations are complete and then switch to a standard policy.
• Take advantage of discounts: Many insurers offer discounts that can help lower your insurance costs. For instance, you may be able to bundle your auto and home policies to earn a discount.
• Consider a Fair Access to Insurance Requirements (FAIR) Plan: If you've been rejected by multiple private insurers, look into your state's FAIR plan. These plans are state-run programs that provide high-risk coverage subsidised by taxpayers and private insurers. FAIR plans typically feature higher premiums and deductibles but can offer basic protection when no other options are available.
• Supplement your FAIR plan with a Difference in Conditions (DIC) policy: FAIR plans usually only cover fire, windstorms, hail, theft and vandalism. To fill in the gaps, you can purchase a DIC policy from a private insurer to add coverage for water damage, liability, theft, and more.
• Ask your insurance agent about the "surplus lines" market: Your agent or broker may be able to obtain coverage in this market, which could provide an alternative option for high-risk properties.

How to prepare your home for a wildfire

Wildfires are becoming increasingly common in California, and it's important to take steps to prepare your home and reduce the risk of damage. Here are some detailed instructions on how to do this:

Know Your Risk

Be aware of the specific risks in your area, including droughts and the wildfire response strategy of your community. Understand the factors that insurance companies consider when assessing fire risk, such as proximity to wooded areas, wind patterns, distance to fire stations and fire hydrants, roof type, and fire risk scores.

Create a Defensible Space

Clear excess vegetation and create a buffer zone around your home. Remove any vines from walls, move shrubs away from the structure, and prune branches and shrubs within a safe distance of chimneys and stovepipes. Replace flammable plants with lower-growing, less fire-prone species. Keep firewood, grills, and propane tanks at a safe distance from your home.

Use Fire-Resistant Materials

Use fire-resistant materials for your roof and siding if possible. Metal, clay, concrete, and certain types of shingles are good choices. Treat wood siding with UL-approved fire retardant chemicals, but keep in mind that this is not a permanent solution.

Cover Openings and Vents

Use mesh wire to cover attic vents, soffit vents, and louvers to prevent floating embers and burning debris from entering your home. Install ember-resistant vents, which are designed to prevent embers from entering while still allowing proper ventilation.

Enclose Decks and Balconies

Keep combustibles cleared from underneath decks and porches, and extend a mesh screen from all overhangs to the ground. Use fire-retardant materials for any new structures added to your home.

Remove Back-to-Back Fencing

Work with your neighbours to remove any fencing that overlaps, creating a gap where debris and embers can build up and cause a fire. Replace wood or plastic fencing with metal, a non-combustible material, for at least the first few feet of the fence or gate.

Maintain Your Property

Regularly clear leaves, twigs, pine needles, and other combustible debris from your roof, gutters, and around fences and gates. Trim tree branches that hang over your roof and gutters, and cut back branches so that they are at least a certain distance from the ground and neighbouring trees.

Taking these steps can help reduce the risk of wildfire damage to your home and may also help lower your insurance costs. It's also important to review your insurance policy regularly to ensure you have adequate coverage in case of a fire.

What to do if your home is damaged by a wildfire

If your home is damaged by a wildfire, there are several important steps you should take to ensure your safety and well-being. Here is a detailed guide on what to do:

Contact Your Insurance Company:

Notify your insurance company about the loss as soon as possible to initiate the claims process. They will guide you through the necessary steps and documentation required. Have a detailed inventory of your belongings, including photos, videos, and receipts, to support your claim.

Notify Your Mortgage Lender:

Inform your mortgage lender about the incident. They can provide guidance on any necessary steps regarding your mortgage and insurance payout. Remember that you are still responsible for making mortgage payments, even if your home is lost.

Suspend or Transfer Utility Services:

Contact your utility providers, such as electricity, gas, and water companies, to suspend or transfer services to prevent further issues.

Obtain a Fire Report:

Prioritize obtaining a fire report from the local fire department or relevant authorities. This report will include details about the fire, its cause, and the extent of the damage, which will be useful for insurance claims and other documentation.

Seek Disaster Relief:

Reach out to disaster relief organizations such as the Red Cross or local government agencies. They will help with immediate needs, including housing, food, and other essentials during this challenging time.

Understand Your Homeowners Insurance Coverage:

Review your homeowners insurance policy to know the terms, limits, and exclusions. Pay attention to dwelling coverage, personal property coverage, and additional living expenses coverage to understand the extent of financial support available for repairs or temporary living arrangements.

File an Insurance Claim:

Provide your insurance company with details about the fire, including the date, time, location, and description of damages. They will guide you through the process and provide the necessary forms. Keep a thorough record of all communication with your insurance company.

Expect Varying Claim Processing Times:

The time taken to process your insurance claim may vary, typically settling within 90-120 days, depending on the complexity of the claim and the volume of claims being handled. Check with your insurance provider for an estimated timeline.

Understand Additional Living Expenses (ALE) Coverage:

Many homeowners insurance policies include ALE coverage, which helps pay for temporary housing, meals, and other living expenses if your home becomes uninhabitable due to a wildfire. This coverage can provide essential financial support during your recovery.

Be Aware of Upfront Funds:

Some insurance companies may offer upfront funds to cover immediate needs, such as temporary housing or clothing. Check with your insurance provider to see if this option is available to you.

Remember to keep all your documentation organized and maintain open communication with your insurance company and mortgage lender throughout the process. With their guidance and support, you can navigate this challenging time and work towards rebuilding your home and your life.

Frequently asked questions