The wildfire risk in California is so high that insurers are withdrawing home insurance policies from areas of the state prone to wildfires. More than a million homes have already been left unprotected, and an additional 1 million could be at risk by 2020.
The coming months will test the resilience of Californian homeowners—and how much they’re willing to pay out for protection against fires

wildfires” are a natural disaster that can cause property damage, loss of life and disrupt the economy. The “wildfires in California drives insurers to pull policies for pricey homes.” is an article that discusses how wildfires have caused insurance companies to stop writing policies for expensive properties.

Wildfire Risk in California Drives Insurers to Pull Policies for Pricey Homes

Concerned about wildfire risk and disappointed by state laws, California insurers have reduced their homeowner business. Affluent homeowners are now facing the brunt of the hardship, as two of the largest companies that provide insurance for multimillion-dollar homes have decided to drop coverage for some of their clients.

American International Group Inc. AIG -1.51 percent will start telling around 9,000 clients in its Private Client Group that their house insurance contracts would not be renewed this year as early as this month. The move is part of AIG’s intention to stop offering house insurance in California via a division licensed by the state’s insurance agency.

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Late last year, AIG informed insurance brokers via email that certain customers could be eligible for coverage via another AIG company. The other section works with other so-called excess-and-surplus lines insurers, which have greater flexibility in terms of policy prices and conditions than insurers in the more carefully regulated home-insurance market.

Brokers estimate that the plans will cost three to five times as much as AIG’s current policies, with less coverage.

The Caldor Fire continued to expand in Northern California in early September, causing evacuations from South Lake Tahoe, a renowned vacation destination. As many evacuated the tourist city, the roads were clogged with automobiles. Associated Press/Nathan Berger photo

“AIG is the first high-net-worth carrier to say ‘we’ve had it, we’re divorcing ourselves from California’s regulated market,’ ” said Jim Tolliver, an insurance broker in San Francisco with Woodruff Sawyer & Co., who fears others will follow suit.

Chubb Ltd. CB -0.08 percent, the state’s largest high-end insurer, is continuing to refuse to renew certain policies. Last Monday, Paul Krump, a Chubb vice chairman, stated, “We are still taking new clients throughout the state in places where we have a decent chance of making a sufficient return.”

Chubb Chief Executive Evan Greenberg noted on its earnings call in October that the insurer’s California decline was “not a tiny amount” in areas “both highly susceptible and even moderately exposed to wildfire.” “Someone else will have the pleasure of writing” the business, he added, adding that “we cannot charge a sufficient price for the risk.”

Chubb intends to issue excess-and-surplus coverage to many customers who aren’t renewed, according to the company, which refused to share policyholder data.

AIG and Chubb’s actions come after years of non-renewals by mass-market insurers. California regulators are optimistic that, as a result of recent rate hikes, segments of the larger market are exhibiting indications of stabilization. Allstate Corporation, Farmers Insurance, and a few other companies have pledged to increase the number of policyholders.

Some insurers are irritated that California regulators compel companies to establish home-insurance prices based on previous loss experience rather than catastrophe modeling forecasts of future losses. Such models may represent the exact, location-specific data that insurers believe they want in the face of increasing wildfire occurrence, which is attributed in part to climate change.

State regulators claim that under the existing system, insurers may achieve acceptable rate increases, but they are worried about the modeling’s accuracy and fairness to minorities.

“We are unhappy that AIG, a multinational corporation with vast worldwide resources, is not continuing to assist safer, more resilient communities in California,” said Michael Soller, a deputy insurance commissioner. The state has urged insurers to give discounts for mitigation measures in order to assist customers in reducing wildfire risk.

Wildfire-Risk-in-California-Drives-Insurers-to-Pull-Policies-for

California’s recent fire seasons have placed pressure on insurance companies, including one in Orinda, Calif. in 2020, but state regulators believe insurers can get enough rate hikes under the present system.

Photo courtesy of Bloomberg News/Sam Hall

The state insurance department allowed a 17.5 percent rate hike for AIG’s residential plans in 2020. AIG’s following request for a 42 percent raise is still pending.

In California, finding replacement coverage, especially for the largest and most costly houses, may be challenging.

“I’m sure there’s enough blame to go around: the insurance department, the insurance companies, and the policyholders,” said Jeffrey Green, a managing director at a financial services business who resides in Napa County and is affected by AIG’s non-renewals this year. “However, if individuals are uninsured and their houses burn down, you’re going to ruin them.”

Mr. Green and his wife, Jane, have spent tens of thousands of dollars pruning trees, installing a fire hydrant that draws water from a swimming pool, and taking other precautions to lessen the chance of their home catching fire.

Even when surrounding houses were damaged by wildfire in 2020, the house survived. Despite this, a six-figure claim for smoke and other damage was filed.

Californians with houses expected to cost more than $10 million to rebuild often pay $20,000 to $40,000 in yearly premiums, while those with mansions estimated to cost $30 million or more frequently pay more over $100,000, according to brokers. In all, a half-dozen or so carriers who specialize in the high end cover tens of thousands of Californians with houses worth such amounts, while others are protected by insurers that concentrate on the larger market.

Mr. Soller said AIG made the decision because of “not just the increased wildfire risk exposure in California, but also the expense of servicing high-value houses” and the effect of worldwide disasters on its reinsurance prices. Wildfires and mudslides, in particular, were mentioned in AIG’s communication to brokers. AIG did not respond to a request for comment.

Leslie Scism can be reached at [email protected]

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Frequently Asked Questions

Does homeowners insurance cover wildfires in California?

A: Homeowners insurance typically covers fire damage, but there are limitations on what they do and dont cover. This is because homeowners policies have a set number of exclusions that protect insurers from covering certain events. One such exclusion would be fires in California due to the high risk of wildfires there which could put them out at a loss if not covered by other means like homeowners flood or earthquake coverage

Are wildfires covered by homeowners insurance?

A: This type of coverage is typically not included in homeowners insurance, but it may be available through an independent insurer.

How do wildfires affect insurance?

A: Wildfires can have significant financial impacts on homeowners and businesses. Insurance companies may be able to offer discounts for fire-safe building practices, but these will vary by company.

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