It’s a complex issue, and one that is continuing to change in an ongoing manner.
For many homeowners in Southern California and across the State, securing appropriate and reasonably priced fire insurance is problematic. Multiple insurance carriers have either fled the State entirely, or are no longer underwriting new business. For people living in the Wildland Urban Interface, that creates tremendous financial hardship and added stress related to wildfires.
In just the past 20 years, California has experienced the worst wildfires in recent memory. In the greater Los Angeles region, some of the largest and most destructive fires in the history of the county and the city have occurred. With more than 1.2 million homes in the state at risk, and 227,000 (and climbing) in the city and county of Los Angeles, the numbers are staggering.
Equally staggering is the rising costs of repairing or replacing structures either damaged or lost to fire. The net result is insurance companies are being hit hard with wildfire claims. Insurance carriers paid out $13.2 billion and $11.4 billion respectively in 2017 and 2018 for fire damage claims resulting from those two catastrophic wildfire seasons. Wildfires have burned nearly 10 million acres of wildland and destroyed more than 39,000 homes in California over the last five years.
The risk of even larger fires continues to rise. Several smaller firms have gone out of business. Larger ones have taken draconian steps to mitigate possible losses.
This means that in today’s market, many homes in the greater Los Angeles region are either under-insured or not insured at all. People are angry and pointing fingers at insurers.
But the fault can’t be placed soley at the doorstep of insurance carriers. In 1988, voters approved Proposition 103, which allows the State Insurance Commissioner to reject proposed rate increases and order refunds to consumers. Advocates say Prop 103 has saved homeowners several billion dollars, but it’s also placed constraints on accurate underwriting and pricing for policies. If insurance companies cannot price policies based on risk, there’s no incentive for them to offer policies in the first place.
The California FAIR Plan is mandated by the state to provide the most basic form of home insurance coverage to high-risk homeowners (who’ve been denied coverage by mainstream carriers). The program is funded by a group of insurance carriers – and should be considered a “temporary safety net” that will at some point be replaced by mainstream insurance carriers.
Fire
Smoke
Lightning
Internal explosion
The basic FAIR Plan does not provide coverage for most other threats, including:
You can in some cases purchase additional coverage under the FAIR Plan, often at considerable cost. Some of these add-ons include:
Covers your home from the following threats not included in the basic policy, including wind or windstorms, hail, explosions, falling aircraft, volcanic eruptions, riot or civil commotions.
Insures your home at its replacement cost, which doesn't include depreciation.
Covers damage to additional structures on your property, such as a detached garage, shed, or guest house.
Covers your personal belongings from the following perils not included in the basic policy, including wind or windstorms, hail, explosions, riot or civil commotions, falling aircrafts, and volcanic eruptions.
Covers your home and property from vandalism or malicious mischief.
Insures your belongings at their replacement cost, which doesn't include depreciation.
Automatically increases the replacement cost of your home to account for a rise in construction, material, and labor costs due to inflation
Covers any mandatory structural upgrades that adhere to local building ordinances.
Protects your home and property from earthquakes through a separate earthquake insurance policy purchased through the California Earthquake Authority (CEA).
Available for condo owners, this covers damage to improvements or alterations in your condo unit.
Pays for lost rental income when a covered loss prevents you from renting out your home or unit.
Covers debris removal and property cleanup after a disaster.
Pays for damage to fences on your property.
Pays up to $250 in coverage per damaged plant or tree.
Covers damage to awnings or signs on your property.
Covers damage to outdoor electronic equipment, including security cameras.
Covers damage to business property.
For coverage that relates to liability, medical payments coverage, or theft, you’ll have to purchase a separate policy, often referred to as a “wraparound” or “difference in conditions (DIC) policy.
On August 23, 2023, the California FAIR Plan announced a new opportunity for homeowners to qualify for discounts to their FAIR Plan policies. The new discounts are designed to provide some peace of mind to policyholders.
The discounts are broken into two groups, and the percentage of discount will depend on how many things a homeowner can demonstrate to have completed reducing risk to either property or structures – or both. This includes HOME HARDENING and DEFENSIBLE SPACE.
Some of the items that can assist you in qualifying for discounts include:
On August 23, 2023, the California FAIR Plan announced a new opportunity for homeowners to qualify for discounts to their FAIR Plan policies. The new discounts are designed to provide some peace of mind to policyholders.
The discounts are broken into two groups, and the percentage of discount will depend on how many things a homeowner can demonstrate to have completed reducing risk to either property or structures – or both. This includes HOME HARDENING and DEFENSIBLE SPACE.
Some of the items that can assist you in qualifying for discounts include:
One additional benefit is that discounts based on taking the steps identified by the FAIR Plan are in addition to discounts provided by the NFPA Firewise USA initiative.
Currently, for most people living in the Wildland Urban Interface, the California FAIR Plan is a good option if you’ve been denied traditional fire insurance coverage. Insurance companies are investing significantly in learning more about risk, climate change, and how to help homeowners quality for traditional policies, but it may be years before these carriers return to California.
If you’re interested in finding wildfire insurance for your structure, the FAIR Plan may be your best bet.
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