California shields millions of homeowners in fire areas from property insurance denials

Nov. 5--On the heels of worst fire season in California history and a dramatic increase in residential property insurance denials in fire-risk areas, the state's insurance commissioner on Thursday expanded a moratorium on non-renewals and denials that he says will affect more than 2 million policy holders, many in the Bay Area.

The areas covered by the moratorium are those in or beside officially declared wildfire disasters occurring since passage of the Wildfire Safety and Recovery Act in 2018. While existing law protected residential holders of property insurance whose homes were completely destroyed by fire, the 2018 act extended the restrictions to those living in and near fire-emergency areas.

Commissioner Ricardo Lara's directive, enabled by state law, also extends a similar moratorium he issued last year, saying it would protect 364,000 policy holders, including many in the East Bay hills and North Bay.

Lara's office issued a bulletin that includes a list of zip codes affected by the moratorium, including dozens in and around the massive SCU fire this year in Santa Clara, Alameda, Contra Costa and three other counties, 16 zip codes in and around this year's devastating CZU Complex Fire in Santa Cruz and San Mateo counties, along with 50 in and around this year's August Complex Fire in Northern California and 19 from the recent Glass Fire in Wine Country. Dozens of additional zip codes are subject to the extension of last year's moratorium.

This year, more than 4 million acres burned statewide, more than twice the previous record from 2018.

While the state's move is good for homeowners in areas of high fire risk, it could lead insurers to increase rates in other areas, said prominent insurance industry lobbyist John Norwood. "The insurers are not going to get an adequate rate," Norwood said. "That may well force them to restrict coverage and availability in other places. If they're stopped on what they can charge and what their actual rate is in Auburn or Paradise, is there a way to make it up someplace else? Is that San Francisco or L.A. or San Jose or someplace that's more urban?"

Last month, Lara's office released data showing insurance company non-renewals across the state had jumped nearly a third from 2018 to 2019, primarily in areas with the highest fire risk. The number of people turning to the last-resort insurance program known as the FAIR plan has ballooned in recent years.

"I have heard your nightmarish fears of losing everything that is precious to you despite your heroic efforts to protect your homes, families, and communities from wildfires, and the unfathomable frustration endured over losing your insurance anyway -- despite all the actions you took to reduce the risk and stay insurable," Lara said during a "virtual investigatory hearing" held Oct. 19.

The commissioner said he would make insurance companies stop "gaming the system" by applying for rate increases just below the 7% level that triggers public input. Citing climate change, Lara also said he would use his "authority as regulator" to create "insurance incentives recognizing home hardening, mitigation of properties, and community mitigation actions."

Norwood said state legislators from fire-affected areas this year were describing embers the size of dinner plates floating for miles to ignite fires, and that he personally watched the Glass Fire jump the Napa Valley near St. Helena.

"The home-hardening situation is really clear," he said. "Individual home hardening didn't make a lot of difference. Where it's done it has to be done on a community basis."

Norwood acknowledged that insurers are "gun shy" of public rate-increase reviews, an expensive and time-consuming process required under 1988's Prop 103. "They go for the 6.9% and they get it approved and then they go back again for 6.9%," Norwood said.

Steve Young, general counsel for the Independent Insurance Agents and Brokers of California, welcomed the moratorium as a "time out" for non-renewals but called it "a band-aid on a gaping gunshot wound."

"The homeowners insurance marketplace is in a state of really significant dysfunction right now, with insurance companies not writing new policies in some areas at any price, and wanting to not renew policies where they can because the risk of loss is so substantial," Young said.

Historically, property insurance in California was a predictable gold mine for insurers, but global warming, neglected forest management by the federal and state governments, and rapid development of communities in forested areas have put an end to that, with billions of dollars in claims to be paid, Young said. "Insured losses are exponentially higher than anything that risk models have ever previously assumed or calculated," he said.

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