Can ‘Fire Hardening’ Solve State’s Home Insurance Crisis?

Sue Ladich spent $1,600 clearing brush and trees from around her home in 2014. In 2017, she ponied up $3,500 to clear even more potential wildfire fuel from her property. This year, she spent another $2,200.

But the more than $7,000 and countless hours of work spent in the name of keeping her Truckee home safe from wildfires added up to nothing in the eyes of insurers.

Californians across the state are taking measures to help save their homes from the state’s ever-worsening fires and satisfy risk-averse insurers, but many, like Ladich, are seeing their homeowners’ policy canceled or premiums jacked up anyway.

“When the local fire department or the Forest Service comes by to inspect our property, we pass with flying colors—they don’t have a single recommendation,” Ladich said. “In my conversations with insurance companies, I’ve raised these items to try to plead our case—it doesn’t make a difference, it’s like they don’t even care to hear these details. They just have a set map and they say, ‘Nope, we’re not insuring in that area.’”

Ladich has been dropped by two companies in three years, and when the third insurer proposed raising her premium from $5,000 to $11,000 this year, she finally gave up and joined the California FAIR plan, the state’s bare bones fire insurance plan of last resort.

She’s far from alone. Homeowners like Susie Williams in Tuolumne County and Lucy Smallreed in Marin have also been dropped by insurers despite efforts at making their homes safer. In 2019, policy cancelations statewide rose by 61 percent, and the state’s 10 most fire-prone counties saw a 203 percent increase. Enrollments in the FAIR Plan jumped 225 percent last year.

Insurers say it’s simply too risky to write policies in these regions—payouts from the 2017 and 2018 fire seasons alone totaled $24 billion, almost completely wiping out the industry’s profits for the previous 16 years.

It’s likely some homeowners would choose to reduce their risk against fire—a practice known as home hardening—regardless of the insurance implications, but state regulators are increasingly eyeing the practice as a potential solution to the burgeoning insurance crisis. In fact, they’re considering whether—and how—to institutionalize it.

Insurance Commissioner Ricardo Lara backed a bill this year, AB 2367, that would have required insurers to renew policies for homeowners that met state standards for hardening their home against wildfire. It died in committee after strong opposition from insurers, and Lara has since said he plans to use regulatory powers to create an insurance program that incentivizes California homeowners to take mitigation measures.

In an October hearing on the insurance crisis and in interviews with CalMatters, both consumer groups and insurance companies indicated that, as a long term solution, they support creating an insurance-based mitigation program. They disagree, however, on the logistics of such a system and whether the state is ready to move that way now.

The fundamental questions that need to be answered are:

  • Who will certify that homeowners meet mitigation standards?
  • How will those standards be determined?
  • Will insurers be allowed more flexibility to adjust rates in conjunction with such a program?

Lara seems to have taken notice of the questions.

He convened hearing earlier this week with fire and home hardening experts and wildfire catastrophe modeling experts to discuss incentivizing home hardening in order to increase insurance availability and affordability.

As Lara has pointed out, when car owners show their insurance company that they’re a safe driver who avoids accidents, they’re usually given a discounted rate. California homeowners who demonstrate that they’ve made their home more immune to wildfire are hoping for the same deal on their insurance policy.

Who Will Certify?

Some California communities already require their residents to meet certain mitigation standards against wildfire.

More than 350 jurisdictions in the state are enrolled in the National Fire Protection Association’s “Firewise” program, meeting certain community-wide mitigation standards. Individual cities and homeowners’ associations sometimes also set their own requirements for cutting back plants or using certain building materials.

Still, insurers are dropping customers who meet these community standards.

Susie Williams, a resident of Groveland, high in the Tuolumne County foothills, has to comply with strict fire mitigation measures stipulated by her homeowners’ association, such as cutting her grass to four inches or less.

Yet since the Rim Fire grazed the town in 2014, Williams has had her homeowners’ policy canceled by four different insurance companies, despite making no claims.

“It wasn’t one particular insurance company that was dropping people, one particular type of house, full timers or part timers,” she said. “Every time you turn around, you see someone whose insurance was dropped.”

Even those who have had insurance company inspectors come to their property and followed their recommendations have faced cancelations.

Lucy Smallreed, who owns a home with her husband in the Marin County’s Inverness, said an Allstate inspector visited her home in 2018 and required her to cut back her trees for fire safety. She did that and more, but still received a cancelation in 2019.

“We keep the brush cut down, we have a metal roof on our home, it’s one story,” all measures experts say reduce the risk of a home burning down, she said. “We’ve done a lot to make it fire-resistant, but that hasn’t resulted in us being able to get insurance.”

She’s now on the state FAIR plan, which costs 21 percent more than her previous comprehensive plan and covers only smoke and fire damage.

Janet Ruiz, communications director at the Insurance Information Institute, a trade group, said insurers are still unsure how to gauge the risk reduction that comes from homeowners taking certain mitigation measures, making it difficult to implement a broader discount program.

“Science is just getting to the point where they’re identifying what things really make a difference,” Ruiz said, adding that the lack of specific standards was the main reason the industry opposed Lara’s fire hardening bill this year.

Waiting for Answers

Hoping to advance fire science to allow for more specific standards to be set, the insurance industry has put its chips on the Insurance Institute for Business and Home Safety, a South Carolina-based nonprofit.

The Institute is researching the efficacy of mitigation measures homeowners can take in eight aspects of their home—fuel management, fences, decks, building shape, walls, roofs, roof vents, and eave overhangs—on behalf of 103 insurers, according to its president and CEO, Roy Wright.

By blasting embers at full-scale model homes in its testing center and taking field observations at California wildfires, Wright said the organization aims to give companies a quantifiable figure on the risk reduction that comes from taking any single one of the eight measures.

“What we cannot yet do is say, okay, if you address just the roof vent, do you reduce the risk by 4 percent, by 7 percent, by 12 percent?” he said. “If you had to say, addressing the deck versus the fence—we know they’re both important, but if you wanted me to put a specific number behind differentiating which one is more likely of ignition, that’s the gap we’re still working on.”

Wright added that a separate complexity for insurers is that fire can spread between closely-placed homes through radiant heat.

“Your house can be perfect, every dimension dealt with, and your neighbor who is six or seven doors down is not, and at that point you’re still vulnerable to wildfire,” he said.

Yana Valachovic, a forest advisor and researcher with the University of California Cooperative Extension, agreed that the science is not there yet to quantify the dollar value from taking particular mitigation measures.

Most of the home mitigation in California thus far has focused on reducing ignition through direct flame contact, but two other ignition types—embers and radiant heat—have not been addressed as frequently, Valachovic said.

Doing the Math

Insurers say another essential step to facilitate a home hardening program would be to allow greater flexibility in setting rates.

Currently, California does not allow insurers to use what’s known as catastrophe modeling—statistical models that help insurers predict losses from catastrophic events—to set rates. Insurers say that changing that rules would allow them to more accurately serve customers, and thus, serve more customers. The state isn’t a fan of proprietary (read: private) models, and doesn’t think the insurers need it, anyway.

California currently requires insurers to base rates on 20-years of historical data on both catastrophic and non-catastrophic losses.

Nancy Watkins, principal and consulting actuary at actuarial firm Milliman, said the most comparable situation to California’s current wildfires is the hurricanes in Florida between the mid-1990s and mid-2000s, which nearly brought that state’s property insurance market to its knees.

In their wake, Florida created a home mitigation program, requiring insurers to offer discounts to customers who took action such as installing hurricane shutters. The program foundered, however, with insurers finding that homes without the mitigation measures were actually more attractive to insure than those participating in the program.

Watkins said Florida’s program was implemented without recognition of insurers’ rate setting strategies, and she worries the same might be in store for California.

“The real problem with mitigation is not the concept of it, it’s how difficult it is to be right and how customized a mitigation credit has to be to the insurer’s situation,” she said.

What Does This Mean for California?

Creating a successful risk mitigation program will require the buy-in of numerous parties, most importantly, the insurance companies and state regulators. One successful model for such a program is Wildfire Partners in Colorado’s fire-prone Boulder County.

Launched in 2014, the program is a public-private partnership between more than 40 organizations—government agencies, insurers, consumer groups, fire districts, realtors, and others. The program is funded independently through state and FEMA grants, and uses those funds to hire former firefighters and forestry professionals. They conduct audits of fire risk on individual homeowners’ properties and provide support to homeowners in mitigating hazards. It certifies properties that meet all of its standards.

The program seems to overcome many of the obstacles California is facing now: the certification is conducted by professionals paid by the program itself, answering the question of who is responsible for the inspections. And unlike the community-scale certification programs that insurers labeled as too broad, Wildfire Partners issues certifications by property, giving individual homeowners evidence of reduced risk they can provide to insurance companies.

Jim Webster, the program coordinator, said Wildfire Partners is unique in that it brings together stakeholders that are often adversaries for a “unified certification process” that encourages mitigation. Because they’ve bought into the program before and trust that its inspectors are professionals, insurers can feel more comfortable continuing to insure those properties or avoid raising premiums.

“Insurance companies took time to buy into the Wildfire Partners approach,” he said. “Anybody can certify and give a person a piece of paper and say ‘I’ve done mitigation,’ but that certification has to mean something.”

As of now, the program has only certified 1,021 homes, but it’s drawing attention nationwide as a model mitigation program. Webster said California could start by piloting a similar program in one county.

Ruiz, the trade group communications director, said the California insurance industry has already been examining Wildfire Partners model and is interested in working together with the Insurance Department to find a solution.

And the department has likewise shown interest in Wildfire Partners, inviting Webster to present at its October hearing.

Susan Hassett, who lived in rural Yolo County until she lost her home to the LNU Lightning Complex fire this year, said such a partnership is exactly what she would have helped her insure her home.

Hassett said that as a former firefighter, she knows she’s doing on home hardening—she spent three years and thousands of dollars reducing the fire risk to her property, including clearing a 400-by-700-foot swath of open space. But in 2017, her insurer canceled her policy.

“I started grilling them and I asked them questions like, have you driven our road? Will you come out and look?” she said.

The answer was “no,” and when she couldn’t find an affordable alternative plan, she went without insurance. After this year’s fire, she was left with nothing to rebuild.

James is a health intern at CalMatters, a nonpartisan, nonprofit media venture.

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