Following a series of catastrophic fires, insurance companies are beginning to dump customers who live in fire-prone areas of the state, including rural San Diego.
That’s sent California homeowners scrambling to find another insurance company in places like Alpine, a town of 15,000 near the Cleveland National Forest.
The changes in the insurance market since the major fires last year are hard to measure, but it’s certain that some companies are no longer writing new policies in high-risk areas, others are going so far as to drop long-time customers and almost everyone is raising rates.
It’s no surprise that insurance companies are reacting this way – 10 of California’s 20 most destructive fires have occurred in the past five years. In the past two years, state homeowners insurance companies paid out over $1.70 for every dollar they collected, according to state figures .
But it’s still surprising to homeowners, especially those who have had the same insurer for years.
Alpine Fire Marshal Jason McBroom said homeowners are calling him frantic because they’re unable to find a company that will ensure their home, even though local fire officials have worked for years to increase the community’s fire readiness.
“It’s a ripple effect from the Northern California fires,” McBroom said.
Of course, Alpine is also no stranger to fires. Last summer, the West Fire  burned 500 acres and destroyed over 50 homes and outbuildings.
Steve Cope, a jeweler in Alpine, said his insurer told him late last year that it wouldn’t be renewing his home insurance policy. He started to get desperate when he found other insurers weren’t writing new policies in his area.
A lot is at stake when people have trouble finding insurance, because mortgages require insurance, so someone can lose their home to the bank unless they can find insurance.
Cope eventually found a policy, but he’s worried about what happens if there’s another fire.
“I think people would accept the insurance to be a little bit higher because of where we live,” he said. “But what’s hard is when you’re totally dropped off.”
Industry officials and state regulators have been keeping an eye on the scarcer options and higher prices for 1.3 million homes in high-risk areas , including 140,000 homes in San Diego County. A recent report by the governor’s wildfire commission found the insurance market is “marching toward a future ” where home insurance is unavailable or unaffordable for people who live near fire-prone wildlands.
Insurers generally don’t comment too specifically about their plans, but it is clear major companies are asking for rate increases and also trying to scale back how many homes they cover in areas where fire is inevitable.
Cope’s old insurer, AAA, declined to comment for this story but has said elsewhere it is looking to trim the number of homes it insures  in fire-prone areas.
In a January call with investors, Michael Klein, an executive at Travelers insurance company, said the company had already worked to “restrict our new business underwriting appetite” and to “implement some nonrenewal action in the state of California to address some of the more significant wildfire exposures in the portfolio,” which is insurance-speak for writing fewer policies. It’s also talking about raising rates. And it’s working with a private firm  to beef up fire prevention efforts in high-risk areas.
Each home insurance policy lasts one year. As the term winds down, insurance companies have to give customers 45 days’ notice but are generally given leeway to drop people, as long as they apply their standards equally across the state.
“It doesn’t matter if you’ve been with that same insurer for 20 years, never had a loss, never made a claim, never been late with your premium, mitigate your own risk,” Joel Laucher, a senior official at the state’s insurance department, told the governor’s wildfire commission this spring.
Bob Watkins, a local businessman and civic leader who lives in Alpine, said USAA dropped his homeowners policy and then he had trouble finding another insurer.
“There needs to be something done so these companies can’t come in and just cherry-pick what business lines they want without taking some of the ugly stuff,” Watkins said.
USAA said it disagreed with Watkins’ version of events and that it doesn’t make decisions based solely on a member’s fire risk.
When people get dropped, they have three basic options.
They can find another insurer that is regulated by the state of California, as all the major companies are.
They can get coverage from a “surplus” insurer that sells insurance in California but doesn’t have to follow California insurance rules – some regulated companies have subsidiaries that offer these surplus lines.
Or homeowners can get a last-resort policy from the California FAIR Plan Association, an insurance provider that covers homeowners in areas where there are wildfires or riots. Because this association exists, industry officials and regulators do not believe there is an immediate crisis.
But the FAIR plan’s prices have risen, as have the number of people who are turning to it for insurance.
Since last fall, new business has tripled, said Tammy Schwartz, FAIR’s vice president of underwriting and operations.
“We haven’t ever grown in the last 10 years until now,” she said.
Schwartz said FAIR is charging more than it used to, maybe $3,000 or $5,000 for a policy, but that’s inexpensive compared with policies from surplus insurers that cost as much as $15,000. Schwartz said they seem to be getting a lot of business from people turned away by Farmers, Allstate and AAA.
None of those three companies replied to an email seeking comment.
The insurance industry points to data that show people are more likely to change policies because they’re shopping around than because their old insurer wants to drop them. But that data comes from a recent RAND study that also found the difference between company-initiated and customer-initiated non-renewals “can be blurry .”
McBroom, the Alpine fire marshal, said he’s seen three non-renewal notices sent by Allstate that give homeowners the option of keeping their policy, if they create 500 feet of defensible space around their home. The state standard for defensible space – an area free of flammable vegetable – is just 100 feet. Some people on smaller lots can’t possibly clear 500 feet around their home because they don’t even control that much land.
“Granted, they are giving you an option,” McBroom said of Allstate, “but it’s an unrealistic option.”
McBroom said he’s talked to Allstate agents who said the requirement is coming down from the top. McBroom said he’s been able to help some homeowners by writing a letter on their behalf that talks about Alpine’s efforts over the years to prepare for a fire, efforts that included adding more fire hydrants and getting a backup fire engine.
Right now, many major insurers are asking for rate increases and using formulas that allow them to charge more to homeowners who live in fire-prone areas. They lean on models, like one known as FireLine, that rate an area’s fire risk on a scale of 1-30.
Rex Frazier, the head of the Personal Insurance Federation of California, an industry trade group, said almost half the insurers are asking for rate increases, so state insurance regulators need to figure out how to balance competing interests. If prices are too high, some people won’t be able to afford insurance; but if prices are too low, companies may not be able to write policies at any price in risky areas because they can’t hope to recoup potential losses.
“The regulator has a huge impact on what happens in the marketplace and trying to find the balance between prices low and keeping insurance widely available, that is a difficult task for any regulator, much less a regulator dealing with a state as large and complex as California,” he said.
Bob Soto, an insurance agent in Alpine, said he’s heard that most major insurers are pulling back or won’t write policies for new customers. He’s advising people to begin thinking about insurance before they put an offer down on a home. He’s also among those who wonder how an insurer’s pricing may affect the affordability of new homes that developers are planning to build in high-risk areas.
“They are going to have to think about that, because it doesn’t do you much good to build if they aren’t going to sell,” Soto said.
State Farm, the state’s most popular insurer, declined to comment on its strategy, but several people in the Alpine area said they’ve heard the company is no longer writing new policies in some areas, though it is not yet canceling policies for existing customers.
State Farm spokeswoman Angie Harrier said the company is in the business of selling insurance so is always trying to provide coverage.
“Those efforts, however, must be balanced with the responsibility we have to all our customers to make good decisions in choosing the properties we insure so that we can continue to provide coverage and pay claims,” she said in an email.
Correction: An earlier version of this post misspelled Michael Klein’s name.