By: Ramu Garuda June.20, 2019
In a recent study on home insurance rates in California, Gavop found that insurance rates in the sunshine state are significantly affected by the probability of wildfires. In fact, in November 2018 alone, wildfires resulted in insurance losses close to $10 billion on residential property. Using data from the Insurance Information Institute, Gavop found that California has the highest number of households at risk from wildfires at 2,044,800, which is about 15% of the total number of households in the state. In the year 2018, California had 8,054 fires – the second highest number among all 52 states. 1,823,153 acres of land was burned, which is the highest among all US states. The image and the table below illustrate the places affected by the most destructive wildfires since 1991 and the number of structures that were burned.
|1||Camp Fire||November, 2018||Paradise, Concow, Magalia, Chico||18804|
|2||Tubbs||October, 2017||Santa Rosa, Anaheim||5636|
|3||Tunnel||October, 1991||Berkeley, Montclair, Piedmont||2900|
|4||Cedar||October, 2003||Lakeside, Alpine, Julian||2820|
|5||Valley||September, 2015||Middletown, Hidden Valley Lake, Loch Lomond||1955|
Because of this recent trend of record-setting wildfire losses, many home insurance providers are now reevaluating the risks they are willing to accept. For instance, big providers like Safeco, Travelers, and Stillwater are unwilling to insure property that lies in brushfire areas. Some specialty carriers may include a separate wildfire deductible, and yet some others may decide to include brushfire areas but may exclude coverage for wildfire losses.
If you reside in a high-risk area that is refused insurance by a standard insurer, you may have to buy insurance through surplus lines. These policies are generally more expensive and don’t comply with standard state regulations. However, they are tailored to insure homes that regular insurance policies will not cover. Another option is to shop around for a more expensive carrier that does, like Chubb or AIG, for example. Both these providers offer loss-preventive solutions and firefighter services as inbuilt mechanisms to avoid large scale fire-related disasters. However, such premier carriers only insure homes that have a valuation greater than one million dollars.
California homeowners can also buy insurance from the California FAIR Plan Association if all else fails in the open market. FAIR plans, which stands for Fair Access to Insurance Requirements, cover up to $1.5 million in structural and personal property for residences in typically high-risk areas. However, they are generally twice as expensive as standard plans, and they don’t offer liability protection.
Data also shows that in the aftermath of the 2018 wildfires, nearly 36% of the California policyholders who filed claims had experienced a total loss of property. So while choosing dwelling coverage, it is advisable to buy coverage at least equivalent to the replacement cost. It is even better to buy an endorsement that extends your coverage limit by up to 50% of your dwelling limit, in addition to the replacement cost coverage. The Gavop table below gives you an estimate of how the insurance rates change by coverage limit.
|Coverage Limit||Average Annual California Homeowner's Insurance Rate|
|$49,999 and under||$360|
|$50,000 to $74,999||$407|
|$75,000 to $99,999||$470|
|$100,000 to $124,999||$519|
|$125,000 to $149,999||$567|
|$150,000 to $174,999||$610|
Ramu is a research analyst with over 7 years of analytics & research experience. Prior to joining the company, he worked with some of the prominent consulting and market research firms in India, including Pride Technology (Supporting consulting projects to PWC), RR Donnelly, and The Hackett Group. His skills include company profiling, benchmarking, data and trend analysis, industry analysis, and report writing across the industries. Ramu holds a Master’s degree in Finance and Marketing. He also has a bachelor’s degree in Biotechnology.