California Bill Would Force Insurers To Cover Homes In Wildfire Zones

Feb. 19--With an insurance crisis causing widespread disruption throughout the state, California regulators rolled out legislation that would force insurance companies to offer coverage in areas where communities and property owners have "hardened" their homes against wildfire risk.

Insurance Commissioner Ricardo Lara said AB 2367 is necessary to stop the tide of homeowners' insurance cancellations in the wake of billions of dollars in claims from a series of destructive and deadly fires. He said the shortage of affordable coverage is hurting economies in rural California and other fire-prone areas.

"The insurance crisis is real," said Lara, who heard from distressed homeowners at town hall meetings. He and lawmakers unveiled the legislation at the Capitol, where they were accompanied by elected officials and fire chiefs from at-risk Sierra foothill communities.

The bill, unveiled Tuesday, would require the state to develop standards for reducing fire risks. Insurance companies would then have to offer coverage to property owners who've met those standards and live in areas where the communities have stepped up as well.

Lara said the legislation has precedent; California already requires auto insurers to cover motorists who meet "safe driver" qualifications. "We require companies to insure a good driver; we should do the same for a hardened home," the commissioner said.

The bill's co-author, Assemblywoman Lorena Gonzalez, D-San Diego, said the legislation will only affect existing properties and won't encourage new developments in fire-prone zones.

Gonzalez and Lara acknowledged that the insurance industry will oppose the bill. "Companies never want to be told how to do their job," she said.

Two insurance lobbying groups pledged to work with the Legislature on solving the problem but said carriers must be allowed to charge high enough rates so they can pay claims when a major fire strikes. Companies frequently complain that California's property-casualty premiums -- which are almost 20 percent below the national average, according to 2016 data -- don't adequately cover the increasing fire risk from climate change and other factors.

"We must strike a balance that ensures the availability of coverage and safeguards insurers' ability to pay homeowners' claims in the face of large-scale disasters," said a joint statement by the American Property Casualty Insurance Association and the Personal Insurance Federation of California.

Moratorium in high-risk areas

Lara has wrestled for months with the increase in cancellations, or non-renewals. In December, the commissioner ordered a one-year moratorium on canceling homeowners' policies in areas that were hit with wildfire in 2019, a move that protects an estimated 1 million policyholders. A bill he authored while in the Legislature, SB 824, gave Lara the authority to impose the moratorium.

But the order had no effect on high-risk areas that didn't burn in 2019 but are still seeing policy cancellations. Lara asked insurers to voluntarily halt cancellations in those regions, but there's no evidence that any companies have agreed. He acknowledged Tuesday that his order is just "a temporary fix to calm the market."

Now AB 2367 would take the next step: Requiring insurers to write coverage in areas where homeowners and entire communities have "hardened" properties against wildfires.

Homeowners who take the proper precautions "should be able to get insurance, and you should be able to keep it," said Assemblywoman Monique Limon, D-Santa Barbara, a co-author of the bill.

It's unclear how the industry would respond if the law gets passed. After the 1994 Northridge earthquake, insurers significantly scaled back their homeowners' coverage rather than be forced to include earthquake coverage in their policies. As the crisis intensified, the Legislature created the privately-funded California Earthquake Authority.

Lara said the 1990s crisis was "fundamentally different" because earthquake risk is heavily concentrated in urban areas that are prone to devastating damage from a major quake.

Hardening your home works

The wildfire risk is spread around many areas of the state. What's more, many experts believe that home hardening and community-wide programs can put a significant dent in the risk.

A McClatchy investigation found that homes built after 2008, when strict building codes were put into place, were far more likely to survive the Camp Fire than older homes. The building code requires fire-resilient roofs and siding, among other things. The Camp Fire destroyed much of the town of Paradise and killed 85 people in November 2018.

Gov. Gavin Newsom's new budget proposal includes $100 million to help homeowners and communities retrofit properties to meet the 2008 building codes.

Tens of thousands of residents, mostly in rural California, have lost their homeowners' coverage as the insurance industry pulled back in response to $25 billion in wildfire claims in 2017 and 2018.

In many cases, they've been forced to seek coverage from unregulated "surplus" carriers, such as Lloyd's of London, or the California FAIR Plan, the state's "insurer of last resort." While the FAIR Plan is subject to rate regulation, it offers only bare-bones coverage, leaving homeowners to pay for additional "wrap-around" insurance to cover theft and other risks.

All told, the costs of homeowners' insurance has tripled for thousands of Californians, including those living in lower-income rural areas.

Lara ordered the FAIR Plan, which is funded by insurers and doesn't receive tax subsidies, to begin offering more comprehensive coverage. The plan is suing Lara. and this week obtained a preliminary injunction blocking his order.

Michael Soller, a spokesman for Lara, said his agency "will continue to work with the FAIR Plan to implement the commissioner's order."

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