When my homeowners insurance in the San Francisco Bay area of California renewed this year, it increased by 15%. I’m very grateful for this.
Why would a 15% jump in my monthly spending be a welcome thing? Because the alternative is much worse.
A Dwindling Market
Given the increasing threats from wildfires and other major catastrophes in California, many insurers are pulling out of the market. It’s becoming challenging to find an insurer willing to cover homes in the state.
In fact, the state’s alternative for those unable to secure insurance on the open market, FAIR, has seen a surge in applications. It’s now getting 1,000 per day.
This trend began after California’s historic wildfires from 2018 to 2020. Even though recent fire seasons have been milder, insurers recognize the immense risk they face.
Incidents like the massive wildfires in Lahaina, Maui, which destroyed an entire town and resulted in $5.5 billion in damages within hours, have made insurers even more cautious about covering properties in fire-prone zones.
This fear has also prompted PG&E, the Bay Area’s local utility, to increase rates to finance the burying of power lines, making them less susceptible to fires. This means higher PGE rates in the short term, another squeeze on homeowners.
Slowly but surely, California’s insurers and utilities are adapting to the realities of the state’s fire risks.
What To Do
For Californian property owners, there are a few strategies to consider.
- If you have homeowners insurance, be prepared for potential rate hikes, especially if your property is in a high-risk area. You can check your fire risk using this tool from the State.
- You can make modifications to your property to reduce fire risks and possibly lower your premiums. This includes creating defensible space around your home, removing foliage or structures in close proximity to the house, and even installing exterior fire suppression systems.
- If you’re looking to buy a home in California, it’s wise to review local fire risk data and consult multiple insurers to ensure you can obtain a policy. Typically, properties in developed or densely populated areas have lower fire risks compared to those in remote suburbs.
- If you’re struggling to find insurance or if your policy is dropped, consider the state’s FAIR plan. For years, private insurers have been hesitant to offer earthquake coverage in California. The state provides this coverage separately and may do the same for wildfire coverage.
With the escalating concerns about climate change, it’s likely that insurance challenges in California will persist. Beyond the immediate threats of wildfires, homeowners also have to navigate these practical insurance hurdles.
My insurance may have increased by 15%, but I consider myself fortunate to even have the option to purchase coverage.