Commissioner Lara orders increase in policy limits for agricultural insurance

California Insurance Commissioner Ricardo Lara is ordering the first increase in coverage limits in fire-prone rural areas in 25 years.

To meet increased fire danger and swelling costs of repair, Lara called for an increase of nearly 90 percent over previous limits to the state's Fair Access to Insurance Requirements plan, a program of last resort for property owners who cannot get commercial insurance.

"With a tighter insurance market due to wildfire risks, many farmers and vintners need more coverage than they can currently get," Lara said. "I am taking aggressive action to protect our farmers, vintners, and other businesses immediately while local government, state government, insurers, and businesses all work together to reduce the wildfire risk and increase a competitive insurance market."

As commissioner, Lara is entitled to revoke his approval of the California Fair Access to Insurance Requirements plan (FAIR) at any point if he believes that the program is not properly stabilizing the insurance market. In this case, Lara demanded that the FAIR plan nearly doubles the existing policy limits for commercial properties and that these limits are adjusted for inflation every two years.

The changes to the FAIR plan -- which requires California insurers to offer basic property coverage regardless of fire risk -- must be enacted within 90 days of Lara's order, hopefully safeguarding wineries sooner rather than later.

In the press release announcing the order, Lara noted that while costs of all kinds have doubled since the maximum coverage limits were set, the limits have remained stagnant at $4.5 million for commercial properties, with $3 million in coverage for structures and $1.5 million for personal property.

These numbers have been unchanged since 1997 and 1994 respectively.

But under the new order, these figures will jump to $5.6 million for structures and $2.8 million for personal property, setting the combined coverage limit at $8.4 million.

"Today's order is one step toward providing greater protection to many of these businesses that are forced to purchase FAIR plan coverage when traditional coverage is not available," Lara said.

The move was part of a package of actions Lara took this week to answer a growing crisis in agricultural areas: Insurance companies limiting policies, demanding exorbitant rates, or denying coverage altogether. In the other major action this week, Lara ordered insurance companies to consider fire prevention efforts property owners have undertaken, possibly lowering rates for those who have been proactive in protecting themselves.

Wine industry groups and local officials applauded the changes made by Lara.

"It will improve coverage in significant ways and affords policyholders the kind of protection they deserve," State Sen. Bill Dodd said. "The Commissioner has worked hard while in office to improve the residential property insurance market, and this latest step is critical for assisting the commercial sector."

Lara's moves grew out of a research study launched after a wave of complaints from the wine and ag industries, the department's first-ever study on wildfire loss and the commercial insurance market. This study was released alongside Lara's demand for increased policy limits, and quantified many issues facing winery owners and their insurers.

The study showed that Northern California wineries have born the brunt of fire-related losses in California.

While the northern coastal region, including Napa, "represents just 8 percent of the state's commercial agricultural and farmowners insurance market, total incurred losses were 45 percent of the statewide total for those years," the study found.

According to this report, local wineries have been burdened with over 90 percent of the industry's wildfire losses since 2017, and as a result, more and more wineries are seeking increased coverage in case fiery winds blow their direction. However, the research found that the number of non-renewed policies has risen since 2017, with the number of insurer-initiated non-renewals, unilaterally canceling a policy, climbing from 118 to 616 in that time.

The study found that FAIR plan policies accounted for about 13 percent of new coverage initiated in the last year, because owners could no longer get regular insurance.

"I am not surprised by the data because we knew that most of the loss was hitting agriculture and wineries in these counties … We knew anecdotally from our membership," said Ryan Klobas of the Farm Bureau. "Now that the data has come out and actually demonstrated that this is the case, it really speaks to the fact that agriculture not only in Napa Valley but just in California, has been experiencing very unique challenges when it comes to wildfire insurance coverage."

In addition to obtaining an insurance policy, winery owners also face changing expectations when it comes to fire suppression and how to best protect their property.

According to Lara's study, 60 percent of the winery insurance industry changed their underwriting criteria in 2020, thus jeopardizing coverage for wineries without funds to create defensible space or meet certain building specifications.

In response, Lara announced a workshop on new rules that would require insurance companies to incorporate fire-prevention actions when rating the risk of businesses and voiced his support for a proposed Prescribed Fire Liability Pilot Project approved in September.

"It's critical that insurance reflects the real risk of wildfire losses, including the hard work consumers are doing to protect their properties," said Lara. "With our agricultural businesses rolling up their sleeves, we need to see the same commitment from our insurance industry to long-term solutions."