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There are a lot of hurdles facing people who want to return to Paradise, the Northern California town that was destroyed by last year’s Camp Fire.
Since then, the town’s population is down about 90 percent, a number that corresponds roughly to the number of homes destroyed. Beyond the debris that still must be removed and the fire-related drinking water contamination, some people wouldn’t return even if they could because of the trauma.
But there’s more.
“Now insurance has kind of popped up front and center,” Charles Brooks, head of the Rebuild Paradise Foundation, told me.
It may seem remarkable that insurers are still offering policies in Paradise, but they are.
Holly Fisher, the program manager at Rebuild Paradise, found that several insurers will selectively insure new homes in or around Paradise. They include AAA and Farmers Insurance.
Also thanks to a new state law, people whose homes were destroyed are guaranteed continuous coverage under their old policies for two years.
Yet there is a sense that insurance companies can’t quite be counted on, because of the industry’s traditionally opaque decision-making. Will a company still be offering insurance when homes are rebuilt? What will the rates be? Will those rates take into account new fire-resistant features that are likely in the new Paradise, like undergrounded power lines?
The insurance industry, for instance, relies heavily on secret formulas to determine where it will and will not insure homes. These formulas also help determine what the companies will charge.
Those formulas don’t offer homeowners or even the companies’ own insurance agents much wiggle room. The most popular formula, a product called Fireline, which was created by a consulting firm known as Verisk, has typically only taken into account three things — the vegetation around a home, the terrain a home sits on and whether fire trucks can get to a property. But it’s not clear what data Verisk uses to calculate those things. State regulators have criticized such formulas for failing to account for fire-resistant features that come with new homes or that homeowners add to old homes.
Some models used to predict future catastrophes – which help decide where to offer policies but not how much to charge — have given wildly different results, according to a Voice of San Diego review of insurance industry regulatory filings.
For example, in a 2018 rate filing, the California FAIR Plan Association compared two popular “catastrophe models” — one by Verisk-owned AIR Worldwide and another by a company called CoreLogic. At the time, the FAIR Plan insured about 5,000 homes in a large region of the state that included Butte County, where Paradise is located.
According to AIR Worldwide’s model, FAIR Plan should expect to have about $4.8 million a year in fire-related losses. According to CoreLogic’s model, the annual losses should be about $1 million.
State regulators, for their part, allow insurers to use various kinds of risk models because, according to officials at the department who declined to be quoted on the record, they are an objective measure of risk.
In Paradise, advocates of rebuilding say they need to have a back and forth with insurance companies as they are building to see if they can get insurance in the first place and to ensure that the price they pay corresponds to the actual risk.
“How can we understand the risk modelling that you use, how can we address any of those points?” Brooks said.
He said the foundation has a three-step plan. The first is to look at availability, which it has already done. The second is to develop relationships with insurers and their consultants to understand the risk models and to see if they can get insurers to budge on how they are used. The third is working with other communities.