About a year ago, Tahoe City resident Kevin Plumb received a letter from The Hartford that it would not be renewing his homeowner’s insurance because his fire protection classification had jumped to a six. (The rating is from 1 to 10, with 1 being the least risky.) Plumb, a contractor who had insured his West Shore house in the Talmont neighborhood for a decade with the company, was shocked. He had been a diligent homeowner and dedicated client. A few years ago during a home remodel project, Plumb cut down all the dead and dying trees from his property. He also had auto insurance and a second home insured with The Hartford. Nevertheless, he was given three months to find a new insurance carrier. After calling every major insurance company he could find, he finally had to settle with Lloyd’s of London, and his insurance premiums tripled.
“Even though I had great defensible space, since I was classified this way, I could not get a renewal,” said Plumb. “I don’t think it’s fair. From a business standpoint I see their concerns … but I am still not very happy about it when my rates triple overnight. I don’t know what the solution is.”
Plumb is not alone. Homeowners all around the Basin and Truckee are seeing their homeowner’s insurance policies not renewed or premiums increasing as insurance companies try to minimize their risks with regards to wildfire. Local insurance brokers are also feeling the pinch. Many insurance companies have placed limitations on the number of new policies they can write, or pulled out of the market all together. The issue has become such a serious problem for the area that the Placer County Board of Supervisors is considering taking action.
Too Great a Risk
Hurricane-ravaged Texas, Florida, and Puerto Rico are not the only regions where natural disasters, or the risk of, make insurance companies reticent to insure properties. Jon Matosian started seeing a change in the insurance market about 15 years ago. An Allstate agent in Truckee since 1998, around the early 2000s he noticed a lot of Safeco Insurance customers coming to him because their policies were not renewed. Then, in 2007, Allstate decided to stop selling property insurance in California. According to Matosian, this was due to wildfire risk as well as Allstate’s obligations to the California Earthquake Authority. The company was concerned that a major earthquake and fire in the same year could put it out of business.
As a result, Matosian said that between 2007 and 2010 Allstate did not renew 500, or 50 percent, of his customers’ policies. Much of the time this was done after an inspector visited a house and made a list of difficult-to-meet requirements to continue the coverage, such as removing dead trees within 500 feet of the home or getting rid of all wooden decks.
In 2008 Matosian switched gears and became an insurance broker with his own company, Truckee Community Insurance Services. Currently, he only has four admitted carriers (non-admitted carriers are not backed by the California Insurance Guarantee Association, which pays claims when an insurance company becomes insolvent) that will write policies for property in the area: Travelers, Hartford, Foremost, and American Modern.
“Before, it was like, ‘What companies aren’t writing here?’ Now it’s ‘What companies are writing here?’” he said. “Thousands and thousands of houses have been non-renewed over the last 10 years. Liberty Mutual, Allied, Safeco, Allstate — at least a dozen companies have or are currently non-renewing, but to a smaller degree than 10 years ago.”
Matosian said that last year one insurance company didn’t renew 60 of his clients’ homeowner’s policies. He was able to place half with an admitted carrier, but the rest had to go with a non-admitted carrier like Lloyd’s of London, Lexington, or Scottsdale. Non-admitted carriers write high-risk business but tend to be more expensive, and are not guaranteed by the state. Matosian says that now half of the homeowners’ policies he writes are with non-admitted carriers.
“It’s going to be kind of the norm,” he said.
Refusal to Write
If you question whether it’s legal for insurance companies to not renew policies, it is. The reason is because insurance companies write their own rules for what makes a property insurable, and they can change those rules at any time.
“Insurance companies can choose to write insurance where they want to,” said Nancy Kincaid, spokesperson for the California Department of Insurance. “No law mandates that they have to write insurance in a particular area. And they can change their minds.”
What’s changed in the last few years is not only increased wildfire risk as California dealt with a major drought, but also the metrics that insurance companies use to determine whether a property is insurable. In the past, insurance companies relied mainly on the Insurance Service Office’s (ISO) Public Protection Classification, which ranks properties on that 1-to-10 scale based on municipal fire-protection efforts such as proximity to fire hydrants and fire stations. However, in recent years many insurance companies have been relying on fire mapping systems that use satellite imagery, such as the well-known FireLine scoring software (owned by Verisk, the same company that owns ISO), which looks at slope, fuel type, and access for emergency responders, and is based on a score of 0 to 30, with 30 being extreme. This is one reason houses in the valleys — Squaw, Alpine Meadows, Northstar — are so difficult to insure: they have steep slopes and only one access road, which bumps up their FireLine scores.
Brett Binneweg, a Farmers agent with Richard Votaw Insurance in Tahoe City, said that Farmers began relying on the FireLine scoring system in 2012, and since that time has been highly restricted with regards to new business.
“About two in 10 homes are eligible with Farmers now, whereas it was eight or nine before,” he said, noting that properties can be ineligible for other reasons besides fire risk, such as occupancy type. He also said that if he were to buy his own Agate Bay house today, it would not be insurable by Farmers.
Currently, Binneweg said that Richard Votaw Insurance is writing 80 percent of its policies with Lloyd’s. (Although Richard Votaw is a Farmers agent, if Farmers won’t insure a property it is allowed to go to other carriers.)
Some carriers also refuse to write policies based on zip code or address. Truckee-based State Farm agent Roxanne Duffield said that her parent company has been under some kind of managed growth since 1999, and that the carrier has placed limits on new business based on addresses using a third-party computer program, which has become even stricter in the last four years. As a result, Duffield’s business has decreased.
“I turn down houses every day. I used to write more houses than auto, now I am writing 100 fewer houses a year,” she said. “I am disappointed. It hurts my pocketbook, but if the company can’t pay claims, I don’t have a job, either.”
Duffield noted that many insurance companies are limiting new business when it comes to property insurance.
“Liberty Mutual was the first one to cancel, then Allstate,” she said. “USAA, AAA, Safeco, Travelers, everyone is doing some sort of cancellation.”
She also noted that natural disasters that occur in other states — such as recent ones like Hurricanes Irma, Harvey, and Maria — can make carriers wary of insuring homes in areas that are prone to catastrophes.
“State Farm is the biggest insurer of homes in the country, it has to minimize [its risk],” she said. “It needs enough money to take care of its current people.”
Apparently it’s not a dismal picture for all brokers. Kevin Murphy, president of Sierra Insurance Associates in Truckee, said that it’s easier insuring homes now than it was a decade ago. More than 80 percent of the time he is able to place homeowners with an admitted carrier like Nationwide, The Hartford, and Travelers.
“It’s way better than 10 years ago by half,” Murphy said. “Three out of 10 polices in 2008/09 were non-admitted, now it’s one to two out of 10.”
Impact on County Revenues
The sheer number of locals who are receiving non-renewal notices is serious enough to set off alarm bells for Placer County Supervisor Jennifer Montgomery, who represents the Tahoe area. According to her, this lack of insurance coverage has large implications for county coffers.
“Most of our revenue is property-taxed based. If your property loses value because you can’t be insured, that is a huge problem,” she said.
Property tax revenue comprises approximately 20 percent of the county’s total operating budget of $886 million. Of the $494 million general fund budget, property taxes represent about 32 percent.
“A significant decline in property value could have devastating impacts on delivery of county services,” said Montgomery, who said she has received “dozens and dozens” of complaints from constituents whose property insurance had been non-renewed.
Property owners who can’t find mainstream insurance have two choices — go with a non-admitted carrier or use the California FAIR (Fair Access to Insurance Requirements) Plan, which is a low-end insurance of last resort. But Montgomery said this plan, which was created in 1968 by the state legislature, was intended for inner cities and is not a good fit for rural areas with high wildfire risk.
Montgomery wants to use Placer County’s position on the Tree Mortality Task Force (TMTF) to put pressure on the California Department of Insurance. The task force was formed in 2015 after Gov. Jerry Brown issued an emergency declaration to protect 10 high-hazard counties from California’s unprecedented tree die-off due to bark beetle infestation. Montgomery would like to encourage the state department of insurance and the insurance industry, which is part of the TMTF Insurance Subgroup, to amend the FAIR Plan so it provides more coverage and is more affordable. If that fails, she wants to take the issue to higher levels.
“At what point do we go to the legislature and say, ‘We need to make a change like they did with earthquake insurance so it becomes more affordable?’” she asked, referring to the creation of the nonprofit California Earthquake Authority by the state legislature in 1996 after the Northridge earthquake, when 95 percent of insurers either restricted or stopped writing homeowners policies in the state.
Montgomery says that another issue is that the FireLine scoring system fails to look at steps homeowners have taken to mitigate wildfire risk, such as defensible space, better building materials, and if their neighborhood is a recognized Firewise community, which means it has developed an action plan to reduce residential wildfire risk. The program, developed by the National Fire Protection Association, is sponsored by the U.S. Forest Service, the U.S. Department of the Interior, and the National Association of State Foresters.
“If you are a Firewise community, that should give you a leg up, but the insurance companies so far have been really unwilling to do that,” she said. “They can set standards that don’t have any relation to the fire safety of a property.”
But it’s not all doom and gloom. Tahoe City resident Valli Murnane received a non-renewal letter from Allied this summer. She spent $5,000 to cut down 10 trees on her property and put new trim on windows, conditions imposed by Allied to renew her insurance. Skeptical that the company would renew her policy even after the work she had done, she decided to call around to find a different carrier. AAA declined, but Farmers agreed. Her new homeowner’s policy is $600 cheaper a year.
“It turned out fine. I invested in a tree service, my yard looks good; I am sure it helps with fire,” she said. “I wasn’t in a position where I had planned on spending $5,000 this summer, but I suppose it could have been anything, like the plumbing.”
Property owners can call the California Department of Insurance consumer hotline at (800) 927-4357 to report non-renewal notices or get help finding insurance.