A series of snapshots:
The homeowners’ policy for Lori Tucker’s home in the Prosser Heights neighborhood of Truckee was non-renewed by Farmers Insurance a couple of months ago due to wildfire risk. After shopping around for options and being denied at every turn, Tucker approached California’s insurer of last resort, the California FAIR Plan. This public entity is a resource for those unable to find coverage in the traditional marketplace, but its policies only cover a limited number of events at a higher premium. She went from paying $1,800 a year to $6,700 for her home.
“I have learned so much and I’ve learned that there’s no solution,” she said. “I wish I’d gotten my time back and hadn’t stressed so much and worked so hard.”
To others wading through the journey of coverage against wildfire, she says, “Save yourself the headache.”
Roger Strawn’s homeowners’ policy for his Tahoe Donner residence was non-renewed on Sept. 7 due to excessive fire risk — also by Farmers. He is now paying nearly $11,000 per year for home insurance with fire coverage through the FAIR plan, including an additional wrap-around policy through Farmers to cover everything else. “This cost is more than double what I was paying a year ago,” he said.
Last August, the Catamount Lodge homeowners association at Northstar California Resort had its building policy non-renewed by Farmers Insurance. Catamount, which houses 40 residential and six commercial units, was valued a year ago at $43 million. Currently, the only wildfire coverage option it’s been able to find is the FAIR plan, which, when the HOA acquired the coverage last November, topped out at $5.6 million for commercial property coverage. (In March 2023, FAIR upped its commercial coverage to $20 million, though the change has yet to be implemented.)
“We’re way underinsured,” said Mark Senigo, a Catamount resident who’s spearheading insurance management for the HOA. Catamount is paying $115,000, or a 2% premium. “That somewhat reasonable premium … is misleading, as it includes the infamous coinsurance clause,” he added later. This clause stipulates that those who file a claim will only receive partial reimbursement.
Steve Bosowski is the president of the First Ascent HOA in the Village at Palisades in Olympic Valley. After losing coverage a year ago, the HOA, made up of 139 residents plus commercial space, managed to obtain $79 million worth of coverage through QBE Insurance Group, with an annual premium of about $1.5 million.
To some, the deal is a relative steal. “[It’s] what [Catamount] believe[s] is the most reasonable HOA building policy currently available at roughly 20 times the rate we were paying in 2022,” Senigo shared regarding First Ascent’s new policy.
Even still, the devil is in the details: The Palisades HOA’s coverage costs nearly 3,000% more than it did two years ago and it’s about $24 million more coverage than First Ascent needs. All of that despite hiring an insurance consultant to look into more affordable options. (Bosowski said the consultant didn’t find anything the HOA didn’t already know on the matter, but did give them peace of mind that they tried everything.)
“It’s almost as if you need a magic decoder ring,” Bosowski told Moonshine Ink. “And that’s the only way you’re going to figure the thing out. Some people were issued the magic decoder rings. Those are the only people that can keep a low premium.”
These cases are not unique in 2023, the same year that most insurance giants have paused issuing new policies or canceled coverage completely for properties across the state. Wildfire is a looming inevitability, and few insurers are willing to risk the payout.
Solutions are being pursued on a state level, including a regulation for insurance companies to take into account homeowners’ efforts to decrease wildfire risk. “What we’re really hoping and expecting with this regulation is that by folks making themselves safer from wildfires, bringing down that risk, that that will entice insurance companies to begin writing again,” said Lisa Strange, who works for the California Department of Insurance, during an Aug. 28 Placer County webinar.
Yet the future is hazy, and those living in rural, forested communities like Truckee/North Tahoe are facing dire straits as wildfire intensity increases in size and catastrophic impacts. Enough that solutions beyond a financial safety net must be considered as a more realistic alternative.
California and Nevada do not require homeowners to have fire insurance, though most mortgage lenders do on condition of the loan and many resources and experts on the matter say it’s a good idea to have such coverage, especially with increasingly larger catastrophic wildfires in recent years.
“Insurance is not the solution,” Senigo said. “It should not be. It’s mitigation and solving and mitigating the risk. We’re lucky enough that we can do a lot to mitigate the risk as opposed to places like Florida where they can do very little in the way of curing hurricanes.”
Like a good neighbor …?
This past May, insurance juggernaut State Farm paused its acceptance of new homeowners applications in the state of California. “State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market,” explained a statement on the move.
“Because of all of those fires the last bunch of years, we’ve paid out a lot of money,” said local State Farm rep Roxanne Duffield, later adding, “In my 35 years, this is the first time that we took a pause on writing fire insurance.”
In 2022, State Farm held the most property market shares across California. Farmers Insurance, Berkshire Hathaway, Allstate Insurance, and Liberty Mutual filled out the remaining top five, respectively. As of publication, all five groups limit (or plan to limit, in Liberty Mutual’s case, beginning Oct. 1) California insurance coverage in some way in reaction to increasing wildfire danger.
These companies and others haven’t been shy about sharing frustration over California’s insurance regulations, which have been focused for years on keeping premiums affordable. In 2023, the state had the second lowest average homeowner insurance rates in the U.S., behind Hawaii.
Seven years ago or so, savvy investors in real estate stopped investing in reinsurance … I think the industry could be the beginning of the next financial collapse.”
~ Mike Peyton, Incline Village Farmers Insurance agent
“We have to go through the department of insurance for rate approval,” Duffield said. “For decades we’ve been asking the department of insurance to give us rate increases relative to our risk. And they did not. Say we asked for a 5% [raise] and they give us 1%. It’s been upside down for decades.”
The California Department of Insurance does not currently allow insurers to utilize wildfire catastrophe models, which permits parties to consider risks when establishing rates. At this time, California state code requires them to use a minimum 20-year average from historical catastrophe losses rather than current-day criteria.
“Proponents of catastrophe modeling note that a ratemaking process that uses a historical average does not consider the ‘new normal’ of California’s wildfire reality,” noted a staff report for a joint assembly committee hearing this past June. “Allowing the use of catastrophe models in ratemaking would give insurers more information to use when they are determining risk. Catastrophe models simulate real world events using data such as topography, vegetation type, and the wind conditions of a certain area. Having this information gives insurers a better picture when they are setting rates for their customers, allowing them to use a more precise approach when determining how much risk they are willing to take on.” California is the only state disallowing the use of wildfire catastrophe models during insurance ratemaking processes. The department did not respond to Moonshine’s request for comment.
Despite a last-minute push in late August/early September by lawmakers and insurance companies to strike a deal that would help correct the insurance pullout before the Sept. 15 close of legislative session, negotiations were ultimately unproductive.
A statement released by Consumer Watchdog in early September cried collusion between those in the insurance industry. The nonprofit represents taxpayers and consumers amid special interest domination in public discourse, government, and politics. “Insurers collected more than $150 billion in premiums from California homeowners over the last 25 years and enjoyed profits at four times the average rate nationwide,” wrote Consumer Watchdog’s founder, Harvey Rosenfield, in a statement. “Now they’re demanding an unprecedented bailout from the California Legislature in the last few days of session as the price of continuing to do business here in the wake of wildfire losses.”
Duffield said she’s frustrated by the political shackles on insurance offerings. “We don’t need legislation telling us what you need to do. Each company needs to look at their models, look at their rates, look at the natural disasters happening, what is happening in the risk tolerance, and do all that. That’s how they [should] base their rates, not legislators come along going, ‘Sure, let’s do this.’”
Mike Peyton is a Farmers insurance agent based in Incline Village. He’s worked in the industry for 23 years and describes the current state of affairs as “a collapsed insurance market.”
He added, “Seven years ago or so, savvy investors in real estate stopped investing in reinsurance … I think the industry could be the beginning of the next financial collapse.”
Peyton sits in a position of handling insurance in two states, Nevada and California. He says that despite California’s increasingly limited market for property insurance, the state is in some ways better off than its eastern neighbor. “On the California side of the fence, we at least have the FAIR plan,” he explained. “It’s at least something … The problem in Nevada is we don’t have a big enough group of people to make a FAIR plan work; there’s not a big enough sample size. Nobody cares about [the] little corner of Nevada where all these rich people live, and they can’t buy their third house … It’s not a mainstream issue.”
In Incline, Peyton says there are houses that his agency can insure, but to issue a policy takes “an act of Congress.” Personal lines that the Farmers office can’t write are sent over to Nevada-based State Farm offices.
“I’ve never worked closer with other agents,” Peyton said, adding that he talks with Incline insurer Mike Menath, head of Menath Insurance, an Alera Group company, every other day about options. “We’re just trying to get it done for people; we don’t even care about commission.”
Setting hopeful parameters
Sarah Heard is the director of The Nature Conservancy’s MarketLab, which looks at market-based approaches to accelerate the environmental nonprofit’s conservation goals. One goal TNC is working toward is creating a credible nexus between the need for forest management and an attractive financial safety net for home dwellers to make it happen. It’s called wildfire resilience insurance.
“We have all of this great science in the form of fire behavior modeling that shows that if you conduct forest restoration on the landscape, it really dramatically reduces the risk of catastrophic wildfire,” Heard explained. Wildfire resilience insurance utilizes that modeling in an insurance context.
In June 2021, TNC copublished a study that found a 41% decrease in residential insurance premiums when applying ecological forestry. Case study in the report was the French Meadows area within the Tahoe National Forest. By implementing ecological forestry methods of controlled burns and thinning, “The researchers found that ecological forestry in the watershed reduced the risk of wildfire substantially for the 81,000 homes in and around the watershed, which in turn could reduce aggregate home insurance premiums $21 million a year,” according to a TNC press release.
Insurance companies as a whole don’t currently provide discounts to those who have performed home-hardening actions on their California properties (though some have their own calculations for internal discounts, like State Farm). That will change by the end of this year. Last October, the state adopted a regulation requiring “insurers to reflect and take into account specified mitigation factors in their rating plans for the purposes of segmenting rates, creating a risk differential, or surcharging a premium due to wildfire risk.” Companies selling homeowners insurance in California had until April 12 of this year to submit new rates to the department of insurance, which, while still under review, are expected to be put in place by the fourth quarter of 2023. The only insurer so far to be approved by the department of insurance is the California FAIR Plan.
TNC’s wildfire resilience insurance product could be used as part of insurance companies’ determination of work performed on a property — and more specifically “landscape-scale eco-forestry that includes thinning and/or prescribed burning,” as Heard pointed out, later adding that the application “showed that in some cases you might expect premium reductions of up to 40%.
“This is why TNC cares about this,” she continued. “We care about nature and people together. But linking those two, if you can make your community safer or your home safer and also realize a reward, there’s that feedback loop of you can get cheaper insurance or you might just be able to get insurance at all.”
TNC is currently in phase two of this exploration, working alongside its partner, global risk advising company Willis Towers Watson (WTW), to find a buyer to run the insurance tool through a pilot program. “You have a buyer — so a community or a business that says, yes, I want this insurance product — and you have an underwriter on the sell side that is saying, we will recognize ecological forestry and the risk reduction benefits it provides and [reward] you with either premium discounts or you can get insurance from us while you can’t get it from others,” Heard said.
At the top of the stack to serve as a pilot program recipient is the Northstar Community Services District, recognized as the gold standard for investing in and performing forest restoration.
It’s almost as if you need a magic decoder ring. And that’s the only way you’re going to figure the thing out. Some people were issued the magic decoder rings. Those are the only people that can keep a low premium.”
~ Steve Bosowski, president of First Ascent HOA
“We have an ISO rating [which ranks a community’s fire protection services] of two out of 10, one being the best,” described Mike Staudenmayer, general manager of NCSD. “We have a hydrant every 300 feet. We’ve got storage like you wouldn’t believe; we have a 180-acre foot reservoir. We’ve got two fire stations, staffed 365. Defensible space. We’ve got wildfire protection plans. This forest mediation work that’s been going on since ’08, where we’ve remediated 2,000 acres of our district boundary on the Northstar side. Defensible space program … We’re a Firewise community and have been since 2010. And our constituents are losing their insurance.”
The community, Heard echoed, is not as risky as it might initially appear. The hope is to pilot wildfire insurance resilience at NCSD for a year and expand to other communities from there.
Northstar’s Catamount building awaits a quote for insurance from the WTW, which is out in the market now “selling their underwriters on a story that we’re safer than the other communities in the fire zones,” as Senigo put it. The expectation is that interested sellers will offer what’s called a parametric policy rather than indemnity-style insurance. Parametric insurance is a method growing in popularity. Rather than the policy where an insurance company guarantees compensation for a policyholder’s losses or damages (indemnity, which companies are pulling back on providing), a pre-determined parameter is set with certain types of damages and, if met, doesn’t require assessment. For example, if a certain level of rainfall is surpassed, that triggers the insurance payout.
Senigo described how parametric insurance might work for wildfire: “This new policy called parametric defines the damage as if the fire enters a certain zone … They draw a circle around [the property] and then you pay based on where the circle is, and they pay it out as soon as they confirm there was a fire. There’s no claim process.”
Similar to the utilization of the California FAIR Plan, there is recognition that wildfire resilience insurance is one piece of the puzzle.
“This is part of the solution,” Heard said. “It closes the protection gap, as it’s called. We’re not covering the entire [Catamount] building — they do have some FAIR Plan … and then they’re trying to get the total value down and shrink the gap and then try to cover that. Often parametric comes in as a layer where it’s like, okay, we’ve got a gap to fill this as opposed to, like, a replacement for indemnity.”
The Catamount board will negotiate and make a decision upon receiving a quote from WTW.
The way of earthquake insurance
The individuals Moonshine spoke to have considered the alternative: not purchasing fire insurance at all. After a certain point, they argue, the fees just become too expensive, and energy could be better put toward defensible space efforts.
“Someone’s got to make a decision regarding the cost and insurance coverage to purchase” Bosowski said. “That’s what we’ve struggled with: Is it worse to have a high HOA fee and have full insurance or have minimal coverage and a lower HOA fee and take the risk that a catastrophic event does not occur. There was not a good choice to be made. Actually, we were lucky we had the option of obtaining full insurance; other HOAs (ourselves included last year) do not have this as an option.”
Senigo has heard of other HOAs whose residents spend $3,000 a month for expensive insurance. They “have essentially frozen their real estate markets and destroyed their resale value,” he said. As an alternative example, he’s also connected with an association in Kirkwood, a town south of South Lake Tahoe, whose 29 residents formally agreed to go without wildfire coverage. Representatives elected not to speak with Moonshine Ink about the decision.
During his research for HOA insurance coverage, his views have changed, Senigo said, whose property lies in a community determined to continue forest restoration and home hardening. “Psychologically, I’ve shifted from ‘we’ve got to find insurance’ — a lot of chasing unicorns, by the way, over the last year — to ‘we’ve got to fund the wood energy facility.’ We’ve got to initiate that so we have a second source for increasing our forest management. That is my priority.”
Northstar Community Service District is seeking the construction of a wood energy facility to process local biomass (as opposed to shipping it out of the region) and turn the material into thermal heat for the Northstar community. The Ink reported on the efforts in May in Bettering Our Woody Ways.
Senigo says he’s casually gauged opinions from fellow Catamount residents: “We may be taking a vote of our homeowners to see what their appetite is for risk versus doubling their HOA dues … My straw polls in hallways when I do run into owners is nobody wants to spend $20,000 a year per unit on insurance.”
“I think insurance is a safety net for people,” TNC’s Heard said, who is a Truckee resident herself and has coverage under the FAIR Plan. “I think it’s a real shame if there isn’t an affordable way to access that.”
Her hope is that momentum will gain traction around the benefits of ecological forestry when it comes to wildfire safety. “I feel really hopeful that [wildfire resilience insurance] is a tool that will become more widespread,” Heard said. “I really do hope that it can help be a solution to the insurance crisis because I think it’s one we haven’t even scratched the surface with yet … I’m hoping we can kind of punch through and demonstrate that and kind of help be part of the solution to what is a growing insurance crisis.”
Some have speculated wildfire insurance in California will follow the same route as earthquake insurance. After a costly 6.7-magnitude earthquake in Southern California in 1994, insurance companies representing 93% of the state homeowners’ insurance market had restricted or stopped writing policies in the state. The legislative solution was to offer a basic policy, which led to the creation of the California Earthquake Authority to provide residential earthquake insurance through participating companies, if a homeowner wanted it. Today, the CEA provides over one million policies — two-thirds of those sold in the state.
That said, only 10% of California’s residents have earthquake insurance.
Duffield said something similar for fires is being explored. “It would be a program that has the same coverages for everybody. Originally, California Earthquake had a very trim policy, and then over the years they adopted where you could add much more to it, different deductibles, more loss of use, more this, that, and the other thing,” she said. “I’d imagine it’d be like that, but I would have no idea of cost. But it’s modeled after that plan; it’s the same plan for everybody, but [the company of the insurer] is the one that works with them with the claim and the quotes and everything else and all questions.”
Tahoe Donner resident Strawn, who’s an engineer by trade, hasn’t had earthquake insurance across multiple homes in California. Fire, however, is a different animal in his eyes: “You can’t get away from the fire risk,” he said. “If the fire comes through, it comes through. If the earthquake hits and you have a modern constructed house, I think you’re pretty good because earthquake standards are quite stringent now … It’s not the same for fire.”
For Strawn, whose HOA has admirable defensible space requirements, and Tucker, who’s put a lot of time, money, and energy into hardening her 25-year-old Prosser Heights home, it’s a sit-tight-and-hang-on kind of situation.
“You should absolutely harden your home and do everything you can to prevent a disaster, but there’s no point in shopping around [for insurance coverage],” Tucker said.