California wildfires result in insurance companies dropping homeowners at faster rate

Facts + Statistics: Homeowners and renters insurance

California wildfires result in insurance companies dropping homeowners at faster rate

The average homeowners insurance premium rose by 3.1 percent in 2018, following a 1.6 percent increase in 2017, according to a January 2021 study by the National Association of Insurance Commissioners, the latest data available.

The average renters insurance premium fell 0.6 percent in 2018 marking the fourth consecutive annual decline. Renters insurance premiums fell 2.7 percent in 2017. (See tables in Expenditures for homeowners and renters insurance section).

Home inventories

On average, over nine survey years ending in 2020, 49 percent of homeowners said they prepared an inventory of their possessions to help document losses for their insurers, according to polls conducted for the Insurance Information Institute (Triple-I).

Forty-three percent of homeowners said they had an inventory in the 2020 Triple-I Consumer Poll.

The survey showed that homeowners in the South and West were more ly to have a home inventory (48 percent and 41 percent), followed by homeowners in the Northeast and Midwest (both regions at 39 percent).

Sinkhole claims

In March 2013 an entire house fell into a huge sinkhole in a suburb of Tampa, Florida, garnering national attention. Although such large, sudden and destructive sinkholes are relatively rare, thousands of small sinkholes appear in the U.S. each year.

The most damage from sinkholes occurs in Florida, Texas, Alabama, Missouri, Kentucky, Tennessee and Pennsylvania, according to the U.S. Geological Survey. Most homeowners insurance policies exclude coverage for sinkhole damage.

However, homeowners insurance companies in Florida and Tennessee are required to offer the coverage. In Florida catastrophic ground cover collapse is mandatory; comprehensive sinkhole coverage is optional. (Note: For information on the Florida law see http://www.insuringflorida.

org/articles/sinkholes.html. For statistics on Florida sinkholes see

Causes of homeowners insurance losses

In 2018, 5.7 percent of insured homes had a claim, according to ISO. Property damage, including theft, accounted for 98.1 percent of those claims.

Changes in the percentage of each type of homeowners loss from one year to another are partially influenced by large fluctuations in the number and severity of weather-related events such as hurricanes and winter storms.

There are two ways of looking at losses: by the average number of claims filed per 100 policies (frequency) and by the average amount paid for each claim (severity). The loss category “water damage and freezing” includes damage caused by mold, if covered.

Every state except Alaska, Arkansas, New York, North Carolina and Virginia has adopted an ISO mold limitation for homeowners insurance coverage, which allows insurers to exclude the coverage unless the condition results from a covered peril.

  • In 2018, 5.7 percent of insured homes experienced a claim, compared with 6.4 percent in 2017.
  • Homeowners insurance losses, net of reinsurance, fell slightly to $56.2 billion in 2018 from $56.5 billion in 2017, according to S&P Global Market Intelligence.
  • In the five-year period, 2014-2018, 5.6 percent of insured homes had a claim. Wind and hail accounted for the largest share of claims, with 2.3 percent of insured homes having such a loss, followed closely by water damage and freezing with 2.1 percent of homes having a loss.

Homeowners Insurance Claims Frequency*

  • Homeowners claims related to wind or hail are the most frequent; the costliest are related to fire and lightning.
  • About one in 20 insured homes has a claim each year.
  • About one in 40 insured homes has a property damage claim related to wind or hail each year.
  • About one in 50 insured homes has a property damage claim caused by water damage or freezing each year.
  • About one in 350 insured homes has a property damage claim related to fire and lightning.
  • About one in 400 insured homes has a property damage claim due to theft each year.
  • About one in 900 homeowners policies has a liability claim related to the cost of lawsuits for bodily injury or property damage that the policyholder or family members cause to others.

*Insurance Information Institute calculations, ISO®, a Verisk Analytics® business, data for homeowners insurance claims from 2014-2018 (see table above).

Consumer prices

The Bureau of Labor Statistics consumer price index (CPI) tracks changes in the prices paid by consumers for a representative basket of goods and services. The cost of living (all items) rose 1.2 percent in 2020. The cost of motor vehicle insurance declined significantly, down 4.

6 percent, as insurers nationwide returned over $14 billion to their customers in response to reduced driving during the Covid-19 pandemic. The cost of tenants and household insurance declined slightly, down 0.5. percent. Hospital services rose faster than overall inflation, up 4.

2 percent, and total medical care rose 4.1 percent.

Expenditures for homeowners and renters insurance

The average homeowners insurance premium rose by 3.1 percent in 2018, following a 1.

6 percent increase in 2017, according to a January 2021 study by the National Association of Insurance Commissioners, the latest data available. The average renters insurance premium fell 0.

6 percent in 2018 marking the fourth consecutive annual decline. Renters insurance premiums fell 2.7 percent in 2017.

  • The U.S. homeownership rate fell slightly in the third quarter of 2020 to 67.4 from 67.9 in the second quarter, after increasing for four consecutive quarters, according to the U.S. Census Bureau. The 2010 Census showed that in some of the largest cities renters outnumbered owners, including New York, where 69.0 percent of households were occupied by renters, followed by Los Angeles (61.8 percent), Chicago (55.1 percent) and Houston (54.6 percent).

Home injuries

In 2018, 25 million Americans experienced an unintentional injury in the home that required aid from a medical professional, according to an analysis by the National Safety Council (NSC).

Injuries requiring medical attention occur more often at home than in public places, the workplace and motor vehicle crashes combined, according to the NSC. There were 89,300 deaths from unintentional home injuries in 2018, down 1.4 percent from 2017.

The overall death rate has remained almost unchanged over the past 100 years, at 27.3 deaths per 100,000 people in 2018 from 28 deaths per 100,000 people in 1912.

However, the number of unintentional home injury deaths has increased by 150 percent since 1999, largely due to increases in unintentional poisonings and falls. Drug overdoses are largely responsible for the poisoning deaths and there has been an increase in older adult falls.

  • Falls are the leading cause of hospital-treated unintentional injuries, according to the Home Safety Council.

High-risk markets

Myriad programs in place across the United States provide insurance to owners of property in high-risk areas who may have difficulty obtaining coverage from the standard market. Residual, shared or involuntary market programs make basic insurance coverage more readily available.

Today, property insurance for the residual market is provided by Fair Access to Insurance Requirements (FAIR) plans, beach and windstorm plans, and two state-run insurance companies in Florida and Louisiana: Florida’s Citizens Property Insurance Corp. and Louisiana’s Citizens Property Insurance Corp.

Established in the late 1960s to ensure the continued provision of insurance in urban areas, FAIR plans often provide property insurance in both urban and coastal areas. Beach and windstorm plans cover predominantly wind-only risks in designated coastal areas.

Over the past four decades FAIR and beach and windstorm plans experienced explosive growth both in the number of policies and in exposure value. However, the number of policies in FAIR plans peaked in 2011 and has been falling steadily. The total number of policies fell 48.5 percent from 2011 to 2019, while exposure dropped by 51.0 percent.

Renters and homeowners demographics

In 2019, 64.6 percent of housing units were owner occupied and 35.4 percent were renter occupied, according to the latest U.S. Census figures. In 2019, 32.1 percent of owner-occupied units housed people age 65 and over. The same year, 16.2 percent of rental units housed people over age 65.

The nation's homeowners paid a median of $1,510 monthly housing costs in 2019, compared with $1,301 for renters, according to the latest American Housing Survey from the Census.

However, renters usually paid a higher percentage of their household income on these costs than did owners, 45.1 percent compared with 26.5 percent of homeowners who spent 30 percent or more of their income on housing costs in 2019.

  • In 2019 West Virginia, Maine, Minnesota and Wyoming had the highest percentage of owner-occupied housing units.
  • The District of Columbia had the lowest percentage of owner-occupied units, followed by New York, California, Nevada, and Hawaii.
  • In 2019, Hawaii, California, New Jersey and Florida had the highest homeownership costs, the percentage of homes in which owners spent 30 percent or more of their income on homeowner-ownership related expenses.
  • North Dakota, Indiana, Iowa and Kansas had the lowest costs, the percentage of homes in which owners spent 30 percent of more of their income on homeowner-ownership expenses.
  • Nationwide, 45.1 percent of renters spent at least 30 percent of their household income on rent and utilities in 2019.
  • In 2019 North Dakota, South Dakota, West Virginia and Kentucky had the lowest percentage of rental units in which occupants spent 30 percent or more of their income on rent. Florida, California, Vermont and Hawaii had the highest percentage.


The West Coast Wildfires Are a Home Insurance Crisis

California wildfires result in insurance companies dropping homeowners at faster rate

The West Coast is burning and insurers are fleeing. Since February the Western half of the U.S. has been facing a record-breaking wildfire season. In California, wildfires have now burned over 4 million acres — double the destruction that the 2018 wildfires caused.

 So far, 8,400 buildings have been destroyed in California. Replacing them, even with insurance, will be a costly and complicated process. Homeowners insurance in California is becoming increasingly volatile as insurers either pull the market or skyrocket premiums. 

Why are insurers fleeing the California market?

Many insurers have pulled the market since the 2018 California wildfires cost insurers an estimated $13 billion. Since they can’t charge premiums high enough to earn an underwriting profit, it doesn’t make sense for an insurer to provide coverage for a high-risk home they know will be destroyed. 

According to the Wall Street Journal, insurers chose not to renew 167,570 home insurance policies in California in 2018, up exponentially from previous years. As 2020 surpasses past years in wildfire damages, insurance losses are sure to follow. And with fewer insurers in the market, premiums are higher with those still underwriting. 

What does that mean for homeowners? 

Renewal rates have spiked for Californian homeowners who live in areas at risk of wildfire.

 Jade Plummer, an insurance broker at Unity One Insurance in San Clemente told us that she’s witnessed some premiums jump from $3,000 a year to $40,000 a year for renewal.

 Facing mounting insurance costs and losing access to private insurance can be a frustrating scenario for homeowners — especially as wildfire-prone areas expand. 

“In high-risk markets or areas where the home value is high, consumers may be forced to pay costly premiums due to limited regulatory protections,” says Mike Gulla, Director of Underwriting at Hippo.

 If it becomes difficult to acquire affordable private insurance for homes, then buyers can’t get a mortgage to purchase in those areas.

And that trickles down to California homeowners struggling to find buyers if they’re looking to move or sell.

Suddenly, homes in fire hazard areas are basically uninsurable and add up to an extremely volatile housing market. It’s not completely hopeless though. “Losing private insurance takes away the options from the consumer. A lot of the time, homeowners in a fire area only have one option,” says Plummer. 

He refers to the California FAIR Plan which offers last-resort coverage for wildfires — supplemented with a more standard policy for liability and other damages. Plummer suggests the program works best if combined with a Difference In Condition (DIC) policy. 

Yet, the worry can still be there for the consumer, Plummer adds. “I think it does make homes harder to sell and buy, as consumers buy so many things online now and don’t know a good broker. They think, well, my rates are acceptable today but what about next year, will it get worse?” 

What are California legislators doing about it?

California officials face a dilemma — they can let insurers raise premium rates, or cap them and see insurers leave the market. Neither option is great for the homeowner. 

David Cusick, Chief Strategy Officer of House Method, told us that, “Officials don’t have much bargaining power here. They can regulate insurance rates, but they can’t stop companies from declining to provide coverage, as has happened to hundreds of thousands of homeowners in the past few years.”

In December of 2019, Ricardo Lara, the California Insurance Commissioner, issued a one-year ban on insurers from dropping homeowners in areas that had experienced wildfires in recent years. That ban expires this December, just a couple months after the worst wildfire season California has ever seen, and it can’t be renewed

In an upcoming hearing with insurers, Lara plans to ask homeowners and communities to implement standards for reducing wildfire risk and implore insurers to reduce premiums for homes that meet those standards. His final bullet reads, “requiring that insurance companies seek adequate and justifiable rates to protect the solvency of the market.”

According to Janet Ruiz, the Director of Strategic Communication with the Insurance Information Institute (iii) key improvements to the state regulatory systems could allow companies to write insurance in high-risk wildfire areas — as well as use models that reflect current climate conditions rather than looking at the past 20-year history of losses.

What can you do about it as a homeowner?

If you live in a hazardous zone, you’ll need to be proactive about your coverage. Shop around, look for supplemental policies and prepare your home to reduce risk.

Plummer recommends working with a broker if you’re having a hard time finding coverage, “Insurance brokers represent many companies, not just one. The process will be much shorter and if you have a good broker, no matter what area you’re in, your house will be able to get insured.” 

Consider alternatives the California FAIR plan or surplus line carriers, Ruiz told us, “in California, everyone has access to homeowners insurance through the California FAIR plan.  It is supported by the insurance industry (private).

It only covers fire losses – homeowners then purchase a second policy to cover other losses such as liability, theft, etc.

” Premiums are more expensive with this method and the California FAIR plan has asked the state for permission to raise its rates. 

By implementing some fire-resistant practices for your home, you may be able to reduce premium rates. Ruiz offered some ideas. 

  • Clear land of brush and flammable debris
  • Clear roof and deck of flammable debris
  • Trim tree branches away from the home

“Flammable debris may include pine needles, wood mulch, firewood and wooden outdoor furniture. Install materials that are specifically resistant to fire where you can and keep your lawn and surrounding areas watered.”

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