Live in a Fire-Prone Area? What You Should Know About Insurance

by | Sep 17, 2020 | Auto & Home

Not sure about your current homeowners insurance coverage? We think you will find this information very helpful. If you don’t yet have a policy, be sure to Contact a UA Agent for assistance!  We are happy to provide an insurance quote for you. In the meantime, be sure to read this important information for clarity and a better understanding of coverage:

The first thing to understand is your homeowners’ or renters’ insurance should cover the repairs. Since the beginning of this year, there have been nearly 7,900 wildfires that have burned over 3.4 million acres in California.  Since August 15th, when California’s fire activity elevated, there have been 25 fatalities and nearly 5,400 structures destroyed.  The damage this year alone is estimated to cost insurers more than $10 billion, according to Risk Modeler RMS.

Buying homeowners’ insurance in a fire-prone area was already tricky, and unfortunately, could get more challenging for residents of these areas, whether their homes were damaged or not. Homeowners who didn’t buy enough insurance before the fires may face thousands in repair costs. In addition, insurers could drop coverage or raise prices in fire-damaged areas in the years to come.

So if you live in a wildfire-prone area, how can you protect yourself?

Does homeowners insurance cover fire damage?

Most homeowners’ insurance policies do cover fire damage. But if you live in a high-risk area, you may need to pay for additional coverage. According to the advocacy group United Policyholders, they estimate around two-thirds of California residents do not have enough insurance. If you rent, buying renters’ insurance will typically cover you in a wildfire. You can learn more about by contacting your insurance agent. If you need assistance a UA agent can answer all of your coverage questions. Contact us for details.

Having enough coverage is especially important in a place like California, which has seen a migration over the past couple of decades to areas made up of scrublands and forests, which are at an extremely high risk for wildfires.

In today’s current reality, the truth is that wildfires have gone from being a “seasonal issue” to becoming a year-round problem. Insurers are going to treat wildfires the same way they treat other environmental perils such as hurricanes or tornadoes.

Could wildfire losses be enough to lead insurers to drop coverage or even go out of business? According to Nancy Kincaid, spokeswoman for the California Department of Insurance, homeowners can rest easy for now. She explains, “These companies have plenty in their reserves, and we do regular financial analysis on the companies every six months. There should be no concerns about companies going out of business.”

Will insurers raise prices?

Laws are in place to keep insurers from dramatically raising rates. In many states, including California, insurance companies need to get approval for increases from insurance regulators. In California, insurance companies have a two-year moratorium against dropping policyholders after a disaster.

After that, they may be able to drop high-risk policies. Almost 20 percent of policyholders in California say their insurance company dropped or declined to renew their policy in the past three years, according to a United Policyholders survey.

If you do get dropped, you will have to find new homeowners’ insurance. You may also be able to take advantage of California’s Fair Access to Insurance Requirements plan, which provides homeowners’ insurance to owners of high-risk properties who can’t get insurance anywhere else. It only covers fire-related risks, so you would have to find insurance for other dangers somewhere else.

The FAIR plan is a last resort for people who can’t find insurance anywhere else. Even if you don’t like your rates, if you can find coverage through an insurance company, you won’t qualify for coverage under the FAIR plan.

The pool of homes covered under the FAIR plans is low - around 4,300 - but the number has grown significantly since 2014 as more homeowners move to uninsurable properties.

How to protect your home in a fire-prone area:

“People are making the mistake of buying a home without even thinking of how much homeowners’ insurance is going to be,” Kincaid said. “And then they end up under-insuring their home.”

The process of shopping for homeowners’ insurance in a high-risk area should begin when you start looking for a home.

Kincaid said when she was looking for a home, she would send her insurance broker the addresses of home listings to get an average homeowners’ price quote. If it was too high, she wouldn’t bother looking at the listing. “It’s a fact of life now,” she said. “Don’t just look at the crime rates and schools in your neighborhood. You need to be looking at the homeowners’ insurance rates, or you’re going to get sticker shock.”

If you already own a home, it’s important to protect the assets you have. The key to protecting your home is to ensure you have enough coverage. United Agencies can help.

According to Kincaid, her rule of thumb is to insure to the cost per square foot to rebuild, and to focus on the current value of the home, not just the value you purchased it at. “If you made improvements to the home, you need to factor that into insurance,” she said. “People don’t think of these things. I’ve asked my friends and they think it gets updated automatically each year.”

If the cost of your homeowners’ insurance rises each year, it’s typically to account for inflation and the rising costs of doing business, not the amount of your coverage increasing.

The easiest way to take stock of what needs to be covered is to take an inventory of your entire home and everything in it. You can do this by making a video. It can take less than 30 minutes to do so, and afterwards, you can upload the video to the cloud (or video service provider) and have it available as needed. Kincaid says, “you will never remember everything after that fact so you need to protect yourself,” she said. “Don’t leave money on the table.”

Image via Shutterstock
California Dept of Insurance

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