California Insurance Crisis
California Insurance Crisis
Many in CA, in the last year, have been shocked to find that their home insurance will not be renewed. The reason cited is the states high fire risk. Most of these homes are in conventional, residential neighborhoods. These homes are surrounded by green lawns, bushes and well-groomed trees. This is hardly the situation that could possibly result in a deadly firestorm. Danville and a number of local communities are served by the San Ramon Valley Fire Protection District. This district is rated ISO 1, this is the highest rating given to a fire district. This rating is based upon response times, available equipment and fire hydrants. Despite this, many homes in this area have been cancelled. Local insurance companies will generally say, “This has just been decided by zip code and is not specific to a neighborhood.”
We are all familiar with some of the disastrous wild fires CA has suffered, like Paradise. Few know, that the huge uncontrollable fires were the result of years of neglected forest maintenance. According to the US Forest Service, there were 129 million dead trees standing in CA. They are mostly pines that were killed by bark-beetle infestations. Environmentalists’ lawsuits have fought any logging, even to remove dead trees. Logging today is not clear-cutting, but selective thinning. This reduces fire risk as overcrowded forests are of much greater risk.
Danville is hardly heavily forested like Paradise was. Insurance companies work very hard to gain business. On the surface it seems strange to just blindly delete zip codes. It turns out that there is much more behind this. Insurance companies protect themselves, by spreading the risk, from massive losses by using “reinsurance.” Reinsurance companies insure companies against losses above certain levels so companies protect themselves from failure. The huge losses have caused reinsurance companies to raise their rates.
The CA Insurance Commissioner, Ricardo Laura, regulates and controls rates charged to consumers. In 1988 the voters gave the Insurance Commissioner this authority and he has not approved the increased costs companies need to pass on. This has forced many companies to not renew and even to leave CA. This results in owners being forced into defaulting to the state, “California Fair Plan,” which is more costly for a much lower level of coverage.
Mark Fernwood