Home / International / California bans insurers from ditching fire-risk policies
9 December 2019
California has ruled that insurers cannot cancel or refuse to renew residential property policies due to wildfire risk for a year.
Insurers must also offer to rescind any notices of cancellation or non-renewals which were issued because of wildfire risk since state of emergency declarations in October, the Californian Government says.
Home insurers must offer to reinstate or renew the policies that were in place at the time of the declarations in nominated postal codes.
This is the first time the state has invoked a new law which took effect in January under the Wildfire Safety and Recovery Act. It established protection for those living adjacent to a declared wildfire emergency who did not suffer a total loss.
The mandatory one-year moratorium covers more than 800,000 policies in northern and southern California in postal codes next to 16 recently declared wildfire disasters. According to the US Forest Service, more than 3.6 million California households are located where wildfires are most likely to occur.
“Insurers shall not cancel or non-renew for one year policies of residential property insurance due to wildfire risk” in nominated postal codes, Insurance Commissioner Ricardo Lara said in a bulletin issued to all insurers writing residential property insurance in California.
Mr Lara, who described a “growing insurance availability crisis,” is also urging insurance companies to voluntarily cease all non-renewals related to wildfire risk statewide until December 5 next year.
Hundreds of thousands of Californians have found it almost impossible to find and afford home insurance after three straight years of extreme wildfires.
Significant fires broke out throughout California in late October, leading to the evacuation of more than 200,000 people and the declaration of a state of emergency. About 1.86 million hectares was lost in this year’s fires. A wildfire in Sonoma County which ignited on October 23 burned an area more than twice the size of San Francisco.
Insurers, which collect $US310 billion ($497.42 billion) in premiums annually in California, have “created considerable disruption” for California’s residents, Mr Lara says.
The number of non-renewals rose by more than 10% last year in seven counties from San Diego to Sierra and the number of consumers covered by the FAIR Plan, California’s insurer of last resort, has surged in areas with high wildfire risk.
“California’s property insurers are retreating from areas they identify as having higher wildfire risk,” the bulletin says. “In many communities across the state, finding affordable comprehensive fire insurance has become difficult. So difficult that real estate transactions have stalled or been cancelled.”
If continued, that trend could cause property values to decline, reducing tax revenue for community fire mitigation, law enforcement, road repairs and hospitals in these communities, Mr Lara says.
“I am calling on insurance companies to push the pause button on issuing non-renewals for one year to give breathing room to communities and homeowners while they adapt and mitigate risks, give the legislature time to work on additional lasting solutions and allow California's insurance market to stabilise.”