Sacramento has faced its fair share of natural disasters this year. From multiple wildfires during the summer to the recent dump of rain, some homeowners may be wondering if their home insurance will help cover any potential future damage to their property.
In some very wildfire-prone areas, homeowners have been finding that it’s becoming increasingly more expensive or impossible to insure their homes. Unfortunately, wildfire insurance isn’t enough — in California, homeowners often also need earthquake insurance, flooding insurance and more.
Making the entire situation even more complicated, private insurers and the Federal Emergency Management Agency are now taking in climate change when calculating coverage payouts or refusal payouts.
Between 2015 and 2019, insurers refused to renew home insurance policies for almost 1 million residents.
Janet Ruiz, director of strategic communications for the Insurance Information Institute, thinks that after so many national disasters, many homeowners may be thinking about how to protect their homes.
“It’s becoming more of a topic, and in the years past, I look at California, when we didn’t have a lot of wildfires, people didn’t think too much about their insurance,” Ruiz said. “Maybe the realtor said ‘hey, go with this agent over here …’ and then that was the last time they thought about it.”
The Insurance Information Institute is a trade association funded by insurers but does not sell or lobby for the industry.
Ruiz spoke with CapRadio’s Insight host Vicki Gonazalez about how the rapidly accelerating climate disaster is making people wonder if they’re protected enough against the elements.
This interview has been edited for clarity and length.
On the way insurance has changed for homeowners over the decades
[In the past] people didn't think too much about their insurance. They kind of buy it at the last minute as they're purchasing a home … Now, you really have to look at your insurance every year when your renewal comes.
Look at the amount — did I buy enough? What's it cost to build now? You know, the building costs have gone up so much, that's why sometimes people end up underinsured. So now it's something you have to think about.
In some wildfire areas, realtors are saying you have to have insurance before you come to [the] closing so that we can make sure you can get insurance in your set. It's not a last-minute purchase anymore.
On how homeowners can prepare
I really recommend people shop and compare their insurance policies, check with local contractors in your area to find out just how much it does cost to rebuild and really look at your content.
How much, how much contents coverage do they need? And that is really the key to making sure you’re not underinsured and then those who are in extreme wildfire risk areas.
We do have the California FAIR Plan, which is the insurer of last resort, but there is insurance for everybody that is in a wildfire area.
On what the California Fair Plan is and what it covers
So the California Fair Plan has always offered insurance to all homeowners in wildfire areas. What [State Insurance Commission Ricardo Lara] was asking was for [the state] to offer more than basic fire insurance coverage.
That's not actually the solution that’s going to be best for people in wildfire areas. The better solution is what we’re working towards — and we’ve been working with the Department of Insurance closely — and that is, we’re going to include mitigation as a part of the way that we work with the Department of Insurance … So this is yet to come …
The other thing that we’re looking to do is using modeling that is future-looking. You know, what’s the effect of drought and climate change on the insurance industry? What it will do is lower the prices in the admitted market or lower the prices for people if they can buy insurance with regular admitted periods.
So the California Fair Plan is fairly expensive because it’s only for high-risk people. If you can buy in the admitted market with regular insurance carriers, it’s going to be less expensive.
So I know that’s a long answer to your question, but that is the better alternative than having the fair plan offer a full insurance policy.
On if insurance companies are moving towards assisting people with fire resilience
[Assisting homeowners with wildfire resilience] is what we’re working towards ... We give a lot of grants to fire safety councils, Firewise USA and the Insurance Institute for Business and Home Safety is doing all the Premier Ember research showing which material burn which don’t.
As the Department of Insurance approves some of the filings that the insurance companies have already put in with them, it can be a slow process. But as these get approved, you’re going to see insurance companies doing just that.
… Fire science has had to catch up because we see it on the hurricane side. We have the four to five [scale??], and now we’re working on the wildfire side to have the wildfire preparedness, and those guidelines are going to all be available …
We’re working closely with realtors and the whole community so that people know what they’re buying, where they’re buying, and how they can live with those risks better in their area and become a more resilient community.
We’ve seen that as homes burn, it’s not just the individual that suffers — it’s the entire community, and it’s very hard to get those communities put back together when it’s large-scale wildfire.
On flood and landslide insurance options
Homeowners insurance does not cover flood, and so you do have to purchase a separate policy. The major program people buy from is the National Flood Insurance Program, but private carriers do also offer some flood coverage. The important thing is, 25% of people who aren’t in designated flood zones do get flood losses from time to time, and we see that every time there’s a massive weather event like we’ve had this week.
But most people purchase that when they’re buying a home because the mortgage company will require it if you’re in a flood zone.
The only insurance that’s available for what we call “landslide,” and that is what we saw happen in Montecito after the Thomas Fire — that’s called a “difference in conditions” insurance.
Usually, you would check with an insurance professional to find out where you can buy it, but that is what covers landslides that sometimes happens after earthquakes, floods, wildfires, et cetera.
Now, in the case of Montecito in 2018, after the Thomas Fire, it was deemed that it was the official proximate cause of the landslide, and then it was covered under people’s homeowner’s insurance.
On what a homeowner can do to mitigate their risk
It’s important to take the mitigation steps that you can so you know your property should be built up higher if you’re in a flood zone.
If you’re in a wildfire zone, you need home hardening. You may be in a couple of zones — my house, in particular, is in a low flood zone and a moderate wildfire risk. So we do all the mitigation we can personally to make sure that our home can withstand risk.