Insurer Withdrawing From Risk

Last August (2022) - Canyon Park Villas - a condo complex that sits atop a steep wooded canyon outside of San Diego - lost its fire insurance, as more private providers across the state decline to renew policies in the face of growing wildfire risks.

When the condo association looked for replacement coverage, the cost was nearly 13 times the old rate: $600,000 a year, up from $47,000. To pay the bill, the complex of 240 clustered units levied an immediate special assessment of $2,500 per home to cover the cost, with another expected later this year.

Residents are struggling to pay - The residents of Canyon Park Villas are part of a growing flood of California homeowners being forced into the world of last-resort insurance, where prices can be astronomical.

Their case is extreme, but the problem is increasingly common: As climate-change-fueled disasters worsen, insurance against them is becoming unaffordable, leaving many families, organizations and governments at growing financial risk.

Between 2015 and 2021, over 1.3 million Californians had their fire coverage dropped by an insurer, out of a total of around 10 million total polices in the state.

A 2022 report from Rand Corporation found that in zip codes in California's Sierra Foothills with the highest wildfire risk, insurance rates are expected to jump by 18% for every $1,000 dollars of coverage by 2055 - making those areas potentially unaffordable to live in.

Insurer Refused to Insure - With 13 of California most destructive wildfires having happened in the last five years, according to the National Aeronatics and Space Administration (NASA), worried insurers are issuing increasing "non-renewals" to policyholders.

In response, the California insurance commissioner, starting in 2019, began blocking insurance companies from carrying out the practice in parts of the state impacted by fire and where states of emergency had been declared.

The blocks "prevent the insurance companies from actually overreacting to the fire and wanting to just, on a whim, (not) renew all these folks. But insurers say worsening wildfires have put the California market under strain, and raising premiums must come alongside making bigger payouts if companies are to stay in business.

After a record wildfire year in 2018, California insurers paid more than $13 billion in claims.

Over 80% of people who contact her in search of wildfire insurance policies are now considering leaving California if they cannot find affordable coverage. Other insurance options beyond private policies are available but not very attractive. It typically has high premiums, and only covers structural damage to properties, compared to traditional private policies that usually also cover loss of a home's contents.

Natural Ecosystem - Fire is a natural part of the California ecosystem, but climate change is increasing the length of the fire season, and leading to droughts that dramatically increase the amount of dead vegetation that feeds large destructive fires.

The average area burned in California each year in the 2000s and 2010s was twice the 1990s average - and in 2020 to 2021 it was 10 times higher. That fast-growing wildfire risk is a major problem, especially with protections from losses, including through insurance coverage, weakening.