Over the course of the past decade, wildfires in California have progressively worsened. This is a situation that is not going to change, with climate change leading to higher temperatures and ongoing drought conditions. As such, many homeowners have faced difficult decisions.
Something that has made life harder for homeowners in high-risk areas is the cost of insurance. The fact is that insurance companies want nothing to do with wildfires, even at the best of times. A wildfire can destroy entire homes and everything in them, leading to massive payouts. They need to charge high premiums to account for the risk.
Considering that wildfires are now all-but-guaranteed in some parts of California, insurance companies do not want to insure for wildfires at all. They, therefore, price premium renewals at unaffordable rates while not granting new policies to homeowners.
Insurance is not just prohibitive for homeowners. Renters can also struggle to find reasonable premiums. Of course, when it comes to the price of any policy, it depends on what your renters insurance covers. But even if your possessions are not the most expensive in the world, a wildfire that destroys everything you own would still lead to a massive payout.
The good news is that measures have been put into place in order to drive down the cost of insurance. These are being implemented by California’s insurance regulator and are the first of their kind.
California’s wildfire insurance discounts
The new rules do not force insurers to provide affordable policies no matter what. Rather, they require insurers to actually assess individual properties and provide discounts for those who have taken steps to protect their homes from wildfires.
California’s Insurance Commissioner, Ricardo Lara, had the following to say:
“Protecting Californians from deadly wildfires means everyone doing their part, including insurance companies by rewarding consumers for being safer from wildfires. The reality of climate change is driving my determination to help communities better prepare, help our firefighters save lives, and help more Californians find insurance they can afford. My department will work diligently to increase discounts to reward the hard work that California consumers do to protect their families, homes, businesses, and communities.”
In order to facilitate implementation, the California Department of Insurance (CDI) outlined specific wildfire safety standards that homeowners can put into place in order to receive discounts. Private insurers will have to create a process that determines how they assess and price for risk with regards to the new regulations.
Protecting people and businesses
The fine line being walked by Lara and the CDI is in protecting both individuals and insurers. There is no doubt that wildfires in California can cost insurers more than they are able to pay without negative impacts to themselves. They cannot price premiums in a way that makes sense when the possibility of a large payout is so high. As such, the department has been careful to ensure that the safety measures will actually save properties.
Insurers are still able to dictate their premiums, even though discounts will be mandated. The laws will not force insurers to take any actions that threaten the financial health of the business.
For California homeowners looking to receive insurance discounts, the CDI released “Safer From Wildfires” guidelines, in partnership with Governor Gavin Newsom. These guidelines provide the steps that different types of property owners can take to make their homes safer.
This is, of course, something of a stopgap measure. There are certain homeowners who will eventually have to make the tough decision to leave their homes. However, as long as there are still ways to protect these homes, owners will be able to receive affordable insurance.