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Local News | The challenge of home insurance in Monterey County in the age of wildfires

The challenge of home insurance in the era of wildfires

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MONTEREY — Climate change and the recent wildfires that decimated Northern California are having a profound effect on some Monterey County homeowners, one they might not have expected.

Acquiring or keeping homeowners insurance is becoming more of a challenge for some Monterey County residents because they live in  “high-risk fire” areas. Though the issue has been part of the landscape for a few years now, it continues to reflect the losses incurred by insurance companies over the past few years.

“Areas such as Carmel, Carmel Valley, the Highway 68 corridor and parts of Salinas and Monterey are all seeing many (homeowner insurance) non-renewal notices,” said Ryan Hinckley, vice president HUB International Insurance Services in Monterey.

Homeowners insurance cancellations or premium increases have also affected others in Pacific Grove and Pebble Beach.

If coverage is available, costs could be doubling or tripling if going from a preferred market to a non-standard or surplus lines market, said Hinckley.

The changing environment 

“Wildfires driven by extreme weather are happening across the entire Western United States and California is at the epicenter,” pointed out Ricardo Lara, California’s Insurance Commissioner, at a May summit with other insurance commissioners.

California is the most wildfire-prone state in the nation with over 2 million households at high or extreme risk from wildfires. In 2018, California had over 8,000 fires that burned almost 2 million acres, racked up insurance losses over $12 billion, and killed 100 people.

The California Department of Forestry and Fire Protection (Cal Fire) has identified 35 high fire hazard “target areas” throughout California including Carmel Valley, Carmel Valley Village/Carmel Highlands and Palo Colorado Canyon.

To reduce those risks, the plan is to aggressively reduce fuel loads in those areas especially after the above-average rainfall totals this past season.

Monterey County has seen its share of large blazes. The most recent started in July three years ago when the Soberanes Fire came to life, wreaking havoc for almost three months, destroying 57 homes, 11 outbuildings. It was later determined to have been started by an illegal campfire at Garrapata State Park and at one point came close to spreading to Carmel Highlands and Carmel Valley.

According to Jonathan Pangburn, Cal Fire spokesperson, the White Rock Ridge area was one of the last lines of defense for protecting Carmel Valley during the Soberanes Fire and is a priority for a fuel reduction project.

The Palo Corona-White Rock Fire Roads project will create 54 miles of fuel break and reduced fuel zone adjacent to the fire access roads of the front country of the Los Padres National Forest.

Three causes have been cited by experts for the ever-growing cost of wildfire suppression in the United States: climate change, fuel accumulation from past wildfire suppression and development in fire-prone areas.

At this point, little can be done to stop the effects of climate on wildfire risk and fuel-management budgets are outpaced by fuel accumulation, but changing behaviors of existing and potential homeowners in fire-prone areas may decrease the cost of suppressing wildfires and increase the odds of a home surviving a wildfire.

Determining risk

Pangburn said the insurance industry has its own set of underwriting processes using satellite imagery among other ways to ascertain the hazard in certain areas, but they still are under the California Insurance Commissioner.

According to the California Department of Insurance, rising risk of extreme wildfires has contributed to higher insurance costs and less insurance availability for California homeowners living in the wildland-urban interface where homes are built among existing wildland vegetation.

The Department of Insurance is working to address wildfire insurance issues as part of the strike team created by Gov. Gavin Newsom. The strike team report released in April identified areas for policymakers to address affordability and availability, including pre-disaster mitigation and home hardening, increased guaranty limits and improvements to the FAIR Plan, the state’s independent insurer of last resort.

According to the California FAIR Plan website, the maximum limit for all coverages combined is $1.5 million at any one location. A homeowner can also purchase an additional insurance policy in addition to the FAIR Plan policy.

“(Homeowners) may be forced to go to the California FAIR Plan for fire coverage, or they may be forced to pay two-times or three-times of what they are currently paying,” said Hinckley. “They may even be required to do mitigation of concerns to stay with their current carriers such as trimming branches, eliminating brush and bushes, cleaning gutters and rooftops. Sometimes mitigations aren’t even an option and they are forced to the non-standard or surplus arena.”

The effect on the real estate market

The effects of living in the high-fire hazard area have also begun to sting homebuyers.

“Due to a lack of choices, the cost of homeowners insurance has gone up significantly in the high fire areas making our area even less affordable for many families,” said Mark Bruno, Keller Williams Coastal Estates real estate agent. “The luxury market seems to be mostly unaffected as there are carriers who have policies available but just at a higher price. I personally haven’t had any transactions canceled due to just the insurance issue, but I know other agents have had this issue.”

Russell Hays, real estate agent with Sotheby’s International in Carmel, said, “We’ve been following this closely and have watched a few escrows be challenged by this. Some have fallen out because of a lack of availability or the premiums being just too high,” for some homeowners to pay.

It impacts real estate in that it increases the cost of a house. When procuring and qualifying for a loan, what is spent on insurance is part of what a buyer budgets for.

Hays said it became an acute issue after the Soberanes fire when insurance companies started to look at their liability in the area.

According to the California Department of Insurance, it has taken action to address the problem of availability and affordability of wildfire insurance coverage by improving the FAIR Plan including expanding requirements on insurers to notify canceled and non-renewed policyholders of the FAIR Plan, and mandated all qualified brokers to provide greater assistance to applicants of the FAIR Plan.

The Department of Insurance has also encouraged insurance carriers to continue to offer homeowners’ insurance in high-risk fire areas and to also offer difference-in-conditions coverage, consisting of all coverage other than fire and other perils covered by the FAIR Plan than can supplement a FAIR Plan fire policy.

“It’s a significant issue. In some cases rates are going up 30, 40, 50%,” said Malone Hodges, Carmel Realty broker associate.

Hodges said in one instance a buyer in Carmel Highlands built a spreadsheet and talked to every insurance company she could find. She ended up paying more than double what the previous owner had paid for homeowners insurance and the previous insurer would not insure anymore.

“It really started to happen during the L.A. fires, then the Soberanes, and now the Paradise fire just pushed the insurance companies over the edge,” said Hodges. “Some are just withdrawing from the area after big losses.”

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Insurance companies are limiting the number of properties they insure in particular locations. Once that limit is met, no other homeowner insurance policies will be written.

Hodges said, “this is an issue that will only get worse.”

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