Insurers Try to Prevent Losses in Wildfire Hotspots
Spooked by devastating wildfire seasons, the nation’s top insurers are inspecting homes in high-risk areas throughout the West and threatening to cancel coverage if owners don’t clear brush or take other precautions.
The inspections have angered homeowners and watchdog groups that accuse the companies of trying to cut risk at the expense of customers, even while industry profits soar. The complaints echo concerns raised after Hurricane Katrina, when many insurance companies increased rates or dropped policies along the Gulf Coast.
“It certainly isn’t fair for these insurers to be dumping these last-minute requirements on homeowners,” said Carmen Balber of The Foundation for Taxpayer & Consumer Rights.
“It does make sense to require homeowners to take reasonable precautions, but some of the excessive demands that we’ve heard from homeowners are over the top,” she said.
The requirements can range from clearing brush to cutting down trees or even installing a fireproof roof.
Insurers and industry groups counter that making people take responsibility for living in the highest-risk fire areas makes good business sense.
“Insurers are in the business of measuring and attempting to put a price on risk,” said Candysse Miller, executive director of the nonprofit Insurance Information Network of California. “We are encroaching further and further into hillsides and areas where we should not build, and insurers have to take a look at that.”
Catastrophic fires, including wildfires, caused $6.4 billion in insured losses between 1986 and 2005, with more than $2 billion of that amount stemming from massive firestorms in 2003 in Southern California, said Loretta Worters, a spokeswoman for the Insurance Information Institute.
In California alone, more than 6 million homes stand in wildfire red zones, and the number of homes built in remote “wildland communities” is expected to increase by 20 percent during the next decade.
Yet a survey conducted last year by Allstate Corp. in California’s most high-risk communities found that more than three-quarters of homeowners thought it was somewhat or very unlikely that their homes would burn.
Denise Taylor, a San Diego high school teacher, lost her home to the Cedar Fire in 2003. The wildfire east of San Diego killed 15 people, scorched 427 square miles and destroyed nearly 3,000 buildings, including some 300 homes.
Taylor was stunned when her insurer, USAA Insurance Cos., doubled the annual premium for her rebuilt residence, which was 300 square feet larger, to nearly $3,000.
She said the company insisted on insuring the home for $1 million even though she only paid $600,000 to rebuild with fire-safe stucco siding, a fire-resistant deck and roof, brush clearance, no eaves and a stucco wall separating her property from a regional park.
“When you look at the profit margins of insurance companies, it’s not like they’re starving. Sometimes they’re going to have to pay a lot of money and that’s life,” Taylor said.
USAA spokesman Roger Wildermuth said his company does brush inspections on homes in high-risk areas but has not hiked premiums because of the Cedar Fire.
State Farm, Allstate and USAA all said they give homeowners an opportunity to fix problems but added that in the most severe cases, customers could be denied coverage if they don’t comply.
“What do you do if that property’s not yours? If they’re demanding a 200-foot clearance, what if you own only 150 feet beyond your house?” said Karen Reimus, a San Diego attorney whose home burned in 2003.
With claims from Hurricane Katrina largely resolved, State Farm Fire & Casualty Co. saw profits climb 65 percent last year to $5.3 billion, while Allstate raked in profits of $5 billion.
The companies are the nation’s first- and second-largest property-casualty insurers, respectively.
An industry analyst said the inspections fit into the larger shift by insurers away from catastrophe-prone areas after the devastating 2004 and 2005 hurricane seasons.
“The hurricane seasons were huge, huge wake-up calls in terms of insurers realizing that they did not understand the risks that they had put on their books,” said Donald Light, a senior analyst with Boston-based Celent. “Many insurers have been doing a lot of things to readjust that balance, and wildfires are a part of that picture.”
A number of companies, including Allstate and State Farm, canceled or limited homeowners policies or raised rates along the southeastern coast after the 2004 and 2005 storm seasons.
Allstate also recently announced it would no longer underwrite new homeowner policies in California, citing risks from wildfires and earthquakes. The company is also seeking a 12 percent rate hike for its 900,000 existing customers.
In the past few months, Allstate has started inspecting homes in high-risk fire areas in Washington, Oregon, Idaho and Alaska before issuing new policies. The company also has been checking new applicants in danger zones in Colorado, Nevada, New Mexico and Utah since last year and homes in Arizona since 2004.
Next year, the company will begin inspecting Colorado homes due for policy renewals, company spokeswoman Megan Brunet said.
State Farm has inspected thousands of homes up for new and renewed policies in high-risk areas in those same states, as well as in Wyoming and Montana, spokesman Jeff McCollum said.
Both companies have been inspecting homes for years in California, one of the worst wildfire trouble spots, and pointed out that the number of homes inspected makes up just a fraction of their overall customer base.
Allstate doesn’t track how many new applicants were rejected because of inspections but said it has received no complaints.
State Farm said no policies were dropped as a result of its inspections. Most property owners were happy to make improvements within the 18- to 20-month timeframe, McCollum said.
“There’s never been anybody who didn’t want to go along with it. Of course the property is important, but with wildfire you’re putting firefighters at risk and your neighbors at risk,” he said. “I think the people who live in these areas were pretty highly motivated to do this.”