California wildfire continues to rage – what it means for insurance rates

The Soberanes Fire in Monterey County has put at least 2,000 homes and buildings at risk, while the Sand Fire has burned more than 38,800 acres in the Santa Clarita hillside area

Catastrophe & Flood


Despite the ongoing destruction and increasing risk associated with the wildfire raging across the California coastline, insurance rates have remained generally steady, industry professionals say.

By Friday, fires burning in the Big Sur region had destroyed at least 60 homes and put more than 2,000 buildings in danger. The Sand Fire in the Santa Clarita hillsides alone has burned more than 38,800 acres.

Firefighters struggled to get an upper hand on the blaze, which spans 42 square miles and has killed at least one person. In total, the fire in Big Sur is just 10% contained and the California Department of Forestry and Fire Protection estimates it will take until the end of August to extinguish it.

Combined with the ongoing drought and fires in the past two years, insurance rates have skyrocketed as much as 30% in some areas. The rising premiums have pushed some from their homes, while others must shop for homeowners and business insurance through the excess and surplus lines market.

Bob Severns III, owner of Severns Insurance Agency in Hemet, California, estimates that about 15% of his clients have been affected by the increased risk. On average, these homeowners in wild and mountainous regions near Big Sur are paying 30% to 40% more than his clients who live elsewhere.

“If there is a large fire and there is a lot of loss, [insurers] are paying out tens of millions of dollars” when entire neighborhoods burn, said Severns, who does business statewide.

Yet these rate hikes are not influencing the market as a whole, say other insurance professionals.
“In general, rates have been pretty steady,” said Janet Ruiz, California representative for the Insurance Information Institute. “Some areas have seen increases while some areas have seen decreases.”

In fact, California’s insurance marketplace is quite healthy, some say. Amy Bach, executive director of the nonprofit group United Policyholders, says that while she has been receiving more complaints about steep rate hikes and policy cancellations, she would not call it a widespread problem.

“[The market] has been very competitive,” she told the LA Times. “There have been lots of companies selling fire insurance. Even with the wildfires, statistically that’s a small number of homes insurers have to pay out.”

Nevertheless, losses in high-risk areas have left insurance agents like Severns with a hard message to deliver to clients. In these situations, Colorado Springs, Colorado agency owner Dave Mellinger urges greater sympathy from agents – particularly the ones who have had losses.

“Be caring and understanding and know that the people who are taking these losses just lost everything,” said Mellinger, who advised clients when wildfires ravaged the area in 2011. “They just want someone to talk to, and brokers are the first person to listen to them.”

The fires come following triple-digit heat in the Southwestern US, even as the risk of wildfire damage is greater globally than it has ever been before, according to a 2015 study from Nevada’s Desert Research Institute and the University of Tasmania. According to the analysis, fire weather season length has increased by 18.7% from 1979 to 2013.

Related stories:
California wildfires costliest for insurers in two decades
Here’s what the California drought means for insurance professionals

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