Thursday, January 14, 2016

Your Homeowners Insurance May Burn You

In California we live with wildfires and reluctantly accept them as a part of life. That is one of the reasons why fire coverage is taken as an integral part of homeowners’ insurance in many parts of the state. However, with the continuing drought and the widespread fires this year, getting coverage is going to become a lot more difficult. Insurance companies are starting to inform some policy holders that their policies will not be renewed on the grounds of “unacceptable risk of wildfire.”

No Protection From Non-Renewal In California

The drought and wildfire situation this year has become so bad that many insurers want to protect themselves from the high risk of costly claims, even if it means a short term loss of business. No commercial entity wants to losecustomers but when the risk of incurring losses is so high that the potential loss is greater than the income from policy sales, hard decisions have to be made. There are no laws in the state, as of now, that prohibit an insurance company from not renewing a homeowners insurance policy.  The State Insurance Commissioner recently stated that a large number of policy holders can expect to be dropped from fire coverage unless the situation take a major turn for the better.

A case in point is that of a homeowner whose house is surrounded by a concrete driveway, the wild grass is controlled and cut short and located about one mile from a fire station. For many, this will appear to be reasonably safe. He received a letter recently from his insurance company saying that this policy will not be renewed in view of the high wildfire risk. The number of people who are receiving these notices is growing steadily.

How Bad Is The Wildfire Problem?

The number tell it all. There are now over 32,000 firefighters at work in California and the Pacific Northwest, but this is not enough. Firefighting costs are already $700 million over appropriation and the U.S. Fire Service has till now had to transfer funds totaling over $250 million from other accounts to pay for the continuing battle against wildfires. These are the figures as of now. What the final cost will be is a matter of conjecture.

What Are The Options?

Agents, who are often caught between the requirement to act in accordance with insurance company policy and the needs of their clients are looking for ways to offer clients alternative coverage. One of the most common options is to place accounts with the non-admittedmarket. This trend has been growing rapidly over the last few years and the Surplus Line Association of California says that its estimates show that over 90% more homeowners policies were written in 2014 as compared to 2011. The wildfire issue is the driving factor in this growth spurt.

What Should You Do?
 
If you live in an area with a high wildfire risk, you could be one of those whose policies may not be renewed. Obviously, the grounds on which the non-renewal decision has been taken are the same ones that make coverage essential for you. The best thing you can do is to talk to an insurance professional about the situation you are in and work with him or her to find the best and most cost effective solution – it could be in the non-admitted market or with another insurance company that may be willing to cover the risk. In fact, it makes sense to anticipate the possibility of non-renewal and contact an insurance agent now, so that you are prepared to act to protect your home if your current policy is not renewed.

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