The concept of ‘a wildfire season’ is somewhat alien to the residents of California these days. In the past few years, fires have swept across the state causing historic losses for homeowners and business owners. As one blaze is contained, another seems to ignite elsewhere. It’s a harsh and constant reality for Californians to come to terms with.
Allison Magda, executive vice president for Brown & Brown Insurance Services, has been located out of the brokerage’s offices in Santa Barbara for the past two-years. She told Insurance Business: “I feel like the state of California has pretty much been on fire for the past two years. It’s crazy. We don’t really have a fire season anymore. Whereas it used to be a three- or four-month timeframe, now it seems like the wildfire season is year-round in California.”
Some of the loss estimates for the 2018 wildfire season are quite staggering. Aon’s Impact Forecasting team recently suggested total aggregated economic losses could exceed $10 billion for the second year in a row. Such sustained and repetitive wildfire losses are causing markets to retract or rescind their coverages in the state, which is creating “major disruption in the marketplace,” according to Magda.
“In California, there’s about 3.5 million homes that are exposed to wildfire, of which about a million are in really high-risk fire zones. We’re starting to see carriers look at how they can pull out of those high-risk zones completely,” she said. “As a brokerage, when carriers pull out, we’re left with a few options. We can go to a non-standard, surplus lines market where the pricing is likely to be dramatically higher, and if those carriers won’t look at it, the last option is the California Fair Plan, which is dramatically reduced coverage and is still more expensive than the standard markets.
“At Brown & Brown, we’re incredibly fortunate that we have a national presence and we have access to just about every insurance carrier out there. The people this market contraction really effects are the smaller independent agents or the direct writers, who perhaps only have access to one or two carriers.”
The big thing all carriers are looking for before they bind a policy in the wildfire-prone state is risk mitigation. Insureds in California need to be proactive about protecting their homes and businesses by doing things like clearing debris and brush from around their property and clearing defensible space.
“We’ve been looking at how we can use technology to help our insureds with risk mitigation and loss control,” Magda added “Doing something as simple as videoing the inside or your home or business and keeping photo and video inventories stored in the cloud can make all the difference if you have to make a claim. It’s sad and scary to think you’re doing that in preparation for your house burning down but being proactive is much more efficient than trying to gather your mind to make a claim at the time of crisis. We can’t stop wildfires. Everyone knows that. So now it’s about preparing people in the best way possible.”
Part of that preparation includes educating insureds about what their policies will actually cover them for. As Magda pointed out, the last thing they want is to have their home burn down in a total loss, only to find out they were self-insuring 50%. There are also certain coverage gray areas for insureds and brokers to be aware of in relation to fire risk.
“From the Thomas Fire to the Montecito mudslides, I think what people learned about approximate causation in insurance policies,” said Magda. “Mudslide coverage isn’t readily available in the marketplace, but given it was an approximate loss to the Thomas Fire, the insurance carriers stepped up and paid the mudslide claims. The big question on everyone’s mind is – if this happens again, will the carriers once again determine wildfire as the cause of loss? They’re saying it’s something they’re going to have to address at the time, but it’s a concerning gray area for residents and business owners in California.”