California wildfire insurance ‘loophole’ affecting survivors of abandoned Carrier Bay Area

SAN FRANCISCO (KGO) — A state regulation aimed at helping Californians access affordable wildfire insurance is being used as a potential loophole, affecting Bay Area residents living in high-risk areas.

The rule proposed by State Insurance Commissioner Ricardo Lara in February would require all insurance companies to give California consumers discounts to reduce their wildfire risk — also known as “strengthening your home”.

“It’s the only way to reduce risk so Californians can keep their insurance,” Lara said.

If approved, the settlement will come into force by the end of the year. The proposal includes benefits, such as requiring insurance companies to provide consumers with their property’s “risk score” and creating a right to appeal that score.

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A possible “escape”

But critics like Consumer Watchdog argue the regulations have a loophole.

And Bay Area families seem to be stuck there.

“There were no questions. They said, ‘You’re done. You don’t have options,'” said Santa Rosa residents Mark and Alma O’Brien.

Their longtime insurer, AIG, dropped them when the company announced in January that it was withdrawing from the state for certain categories of the regulated insurance market.

“So we had to make do. We tried to find another insurance,” said Mark O’Brien. “I went to three or four different carriers and got turned down.”

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The O’Briens tried Farmers, State Farm and AAA Insurance.

“All have denied us,” he said. “They go, ‘What’s your address?’ And you hear that dead pause. And they’re like, ‘Oh, well, we’re not insured in this area.'”

Alma and Mark had not yet filed a claim. But, since the Glass Fire tore through their Napa County neighborhood two years ago, burning down 60 homes on their street, they’ve made investments to reduce their wildfire risk.

“We added Vulcan vents, sprinklers on the roof, cleared five feet of our house,” Mark O’Brien said. “Also pruned all the trees in the house and hardscaped in our driveway.”

It’s the same story with their neighbor, Harriet Buckwalter.

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“My husband cut down trees for about six weeks straight,” she said. “We spent an extra $4,500 to do the trees we couldn’t do and clean up all around our house. Also, CALFIRE came to do an inspection.

Buckwalter says she contacted 25 different insurers, but none of them wrote policies in the area.

In February, Lara proposed a settlement aimed at preventing this – promising that wildfire insurance will have to consider mitigation efforts when granting a new policy.

“If insurance companies factor in curing at home, it will really reflect the actual risk, which they currently don’t,” Lara said. “So we’re saying with this new regulation, insurance companies need to take that into account.”

But the problem is that people like the O’Briens and the Buckwalters are still uninsured.

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“It’s the huge flaw in this rule that could really eat away at its promise,” said Carmen Balber, executive director of the nonprofit Consumer Watchdog.

Balber says that while the settlement sounds good on paper, it doesn’t tell the whole story.

“There are two parts to the insurance transaction. First, insurance companies decide whether they’re going to sell you coverage. And second, they decide what price they’re going to charge you,” Balber said. “This settlement deals with the price, which is of course important to all of us, but it does not deal with the issue of sales – whether or not you have an insurance policy.”

In other words, insurance companies are not required to consider mitigation measures when deciding whether or not to sell a policy to a consumer. Thus, residents living in high fire risk areas may be left unprotected.

Even former state insurance commissioner Steve Poizner was not renewed by his carrier, despite spending tens of thousands of dollars on mitigation measures, according to his op-ed in the LA Times.

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It’s the same story with these families.

“I don’t know of anyone who was able to get insurance,” Buckwalter said, referring to his network in Santa Rosa.

“We’re stuck,” O’Brien said.

Both families told ABC7 they were left with only one option: the California Fair Plan.

The California Fair Plan

The California Fair Plan is the state’s insurer of last resort, providing access to fire coverage for California homeowners unable to find insurance in the traditional market.

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“It’s extremely confusing,” said Mark O’Brien.

And it’s not cheap.

“It’s at least double what we were paying before, with less coverage,” O’Brien said.

“Our coverage is about three and a half times what we had before, and that’s also with a $20,000 deductible,” Buckwalter said.

Buckwalter says that without the deductible, the California Fair Plan would have been about seven times more expensive than its existing policy.

Ricardo Lara: “The FAIR plan must be affordable and available to all Californians who need it.”

Stephanie Sierra: “The problem is that it’s not affordable and it’s not comprehensive. What are you doing to change that?”

Ricardo Lara: “What we need to do is provide a comprehensive policy option that currently doesn’t exist in the FAIR plan, so that people don’t have to pay the extraordinary amount of administrative fees that just add to the cost.”

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Eliminating administrative fees is one step, but consumer advocates argue that unless the regulations are changed, the loophole will leave the most vulnerable communities struggling.

Consumer Watchdog, along with several other consumer organizations, have sent several letters asking the commissioner to use his authority to close what they see as the “non-renewal loophole.”

The Department of Insurance rejects these claims, adding that the regulations will still require insurance companies to recognize and reward consumer mitigation efforts by offering discounts. But that won’t compel insurers to issue a policy based on those efforts.

And after

The ABC7 News I-Team asked if Commissioner Lara would edit this rulebook to change that.

We were told, “Commissioner Lara can take action within the settlement and will review all public contributions. We urge people to contact the Department of Insurance, who can review their non-renewal.”

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The ministry also lists the following expected benefits of the settlement:

  • Encourage individual and community mitigation efforts by requiring insurers to consider property and community level mitigation against wildfire risk;
  • Reduce the risk of loss posed by forest fires;
  • Improve the accuracy of wildfire risk classification and resulting rates and premiums;
  • Increase transparency and consumer awareness of forest fire risk assessment and/or rating by insurers;
  • Improve consumer protection by establishing a consumer appeal process;
  • Reduce unfair discrimination by improving the consistency of insurers’ wildfire pricing practices and/or risk rating practices; and
  • Potentially improve the availability and affordability of property and casualty insurance for communities and properties where wildfire mitigation measures have been implemented.

The regulation should enter into force before the end of the year.

Contact the department’s consumer hotline here.

If you’re on the ABC7 News app, click here to watch live

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