Oregon bill aims for insurers to recognize wildfire mitigation steps

Proposal could reduce premiums for those taking action

SALEM — Oregon lawmakers may require insurance companies to offer discounts to homeowners for wildfire mitigation measures, unless those actions are factored into their risk models.

The increased prevalence of devastating wildfires in Oregon in recent years have raised costs for insurance companies, and by extension for insurance customers, said Dave Jones, director of the Climate Risk Initiative at the University of California-Berkeley.

Scientifically-based measures for reducing wildfire risk are underway at the level of individual landowners as well as the broader community, but these haven't yet translated to consumer savings, he said.

"Despite homeowners' investment in home-harding and defensible space, and despite public investments in community-level mitigation, many, if not all insurers are not taking these mitigation measures into account in the computer models they use to price and to decide whether to write or renew insurance," Jones said during a recent legislative hearing.

It's important to increase the "transparency" of insurance pricing, not only for residential homeowners but also for businesses, especially those in rural areas prone to wildfire, said Samantha Bayer, general counsel for the Oregon Property Owners Association.

"I have heard from property owners, particularly farmers and ranchers who are very concerned about how their farm insurance and their business insurance is being affected by wildfire," she said.

Proposal

A proposal that will be introduced during Oregon's upcoming legislative session would require insurance companies to recognize the wildfire risk reduction steps that are occurring in the state, according to supporters.

"Citizens of Oregon who are spending their own money for property-specific mitigation, and paying taxes or fees for community-level mitigation, are rightfully frustrated that they're not currently being given credit for these risks reduction efforts," Jones said.

Under the proposed "legislative concept," which hasn't yet been assigned a bill number, insurance companies would have to submit documentation to state regulators showing how they've accounted for wildfire mitigation actions in their risk models.

That information would be kept confidential by the state's Department of Consumer and Business Services, which would implement the new regulatory requirements.

Insurance companies would also have to provide property owners with written notification specifying their wildfire risk classification or risk score, which they'd have the right to challenge in an appeal process.

"The purpose of this is to arm homeowners and arm communities with the information they need, so they know what they need to do in order to get a better risk score," Jones said.

If an insurance company doesn't consider wildfire mitigation steps in its risk models, then the bill would require them to offer discounted rates or other incentives to property owners.

"The discounts would be based on some universally-accepted standards. I couldn't go to my carrier and say, 'Well, I took down a vine over there, so you owe me a discount,'" said Sen. Jeff Golden, D-Ashland. "It would be based on what have become scientifically-appreciated standards for risk reduction threat and if I didn't meet those, I wouldn't be entitled to a discount."

If passed, the legislation would take the Department of Business and Consumer Services "quite a bit more under the hood" of the data models used by insurance companies, said TK Keen, the agency's insurance commissioner.

"We would through this have to examine carefully the entirety of the data model to ensure that the mitigation is being properly reflected and have to work closely with data analysts and actuaries to ensure that such a a filing meant the standards of the law," Keen said.

Note of caution

The Northwest Insurance Council, which represents the insurance industry, offered a "note of caution" as well as a "note of optimism" about the legislation, versions of which are being considered or enacted in California, Colorado and Montana, said Kenton Brine, the group's president.

"Insurers can play a meaningful role in encouraging mitigation, which is the real answer to protecting lives, homes, and communities from wildfire," Brine said.

However, the insurance industry does have concerns about the proposal, such as the lack of specificity regarding the amount of discounts for mitigation steps, which may not be supported by data or "even necessarily beneficial to the consumer," he said.

"If you replace your roof for $70,000 and you get a $25 discount on your policy, maybe is not that impactful," he said.

The bill also allows for "prescriptive, onerous and likely costly appeals" for consumers, which may cause insurers to question whether "the juice is worth the squeeze" of undergoing that process, Brine said.

Though Oregon has been paying more attention to reducing wildfire risk, those efforts haven't yet decreased losses for insurance companies, he said.

Encouraging wildfire mitigation by landowners and communities is a worthy goal, but it should not impose "high-cost mandates" on insurers that end up providing "limited actionable information or benefit to consumers," he said.

"Now, that doesn't mean those things are terrible ideas. It just means that there's some bugs to be worked out on the ground," Brine said.