New Requirements for California Home & Fire Insurers

California, along with other western states, has endured extensive wildfire destruction to properties ranging from smoke damage to constructive total losses. The Golden State’s residents have often dealt with wildfire issues due to dry weather in winter months creating fuel for fires in summer and fall months, but now fires have become pandemic year-round. In late 2017, the “Northern California Firestorm,” specifically in Sonoma County, caused massive wildfire losses with over 3,000 homes and businesses sustaining partial or total losses along with the tragic loss of life. Beyond Sonoma, the property loss and destruction were greater than 36,000 structures with 250 active fires throughout the state in October 2017.

New legislation. The $13 billion in damages from last fall’s fires prompted the Governor of California to sign Assembly Bill 1797 to be effective July 01, 2019. The bill requires insurance companies in California to provide additional coverage to homeowners who are victims of brushfire. While that may be the case, insurers have for many years provided ‘inflation guard’ coverage which generally increases values of property, (Coverage ‘A’) minimum of 3%. This is often not enough if properties are insured as Actual Cash Value (ACV), vs. Replacement Cost Coverage (RCC) which generally has options of increased limits up to 150%, thus allowing additional ‘Coverage A’ values.

Five additional bills passed the legislature and were just signed by the governor on September 21. SB 894 (Dodd), AB 1772 (Aguiar-Curry), AB 1800 (Levine), and AB 1875 (Wood) aim to address critical issues including underinsurance, rebuilding, and recovery. SB 824 (Lara) enhances data collection and helps insurers write more policies in the Wildland Urban Interface without overextending their risk profile.

Reducing exposure. We continue to learn how to prevent and minimize future fires by requiring specific improvements for building materials and surroundings around existing and new home construction. Strict building codes with the clearance of brush exposure along with water sprinkler systems in new construction of homes are examples. Building materials such as tiled roofs, stucco and fire retardant material are also utilized. This doesn’t eliminate the wildfires but helps control, and in many instances, reduce the exposure.

Selective coverage. Insurance companies writing homeowners and fire coverage in California have always been cautious due to homes located in “redlined” areas, such as deep canyons or low-lying brush areas. For this reason, insurance companies have been very selective in providing coverage for homes. The top five writers of home insurance in California continue to stop writing new business in brush-exposed areas. Furthermore, they continue to non-renew policies if potential brush exposure exists. Mapping data available to insurers has been a factor in the selection of risks in addition to loss history, thus the restrictions as indicated here.

We can help insurers.
We at JLK Rosenberger can provide sound advice related to product enhancement, development or review of policy forms while making sure price point is in line providing coverage for risks located throughout the state.