California Creating New Standards to Reduce Wildfire Risk for Homeowners

February 10, 2021California

California has taken the first step in implementing new “home hardening” initiatives to reduce risk for homeowners following the worst year on record for wildfires in the Golden State.

The initiative will expand existing measures and create new standards that include building upgrades, defensible space, and fire-resistant landscaping. As important, the new standards are intended to make insurance available and affordable in response to a soaring number of policy non-renewals and cancellations due to catastrophic wildfire losses suffered by insurers over the past few years.

The goal of formulating new standards was announced on Feb. 8 by California Gov. Gavin Newsom and Insurance Commissioner Ricardo Lara. The new standards will apply to retrofits for existing properties to help homeowners secure and maintain insurance coverage.

The guidelines will be developed with representatives from the Governor's Office of Emergency Services (CalOES), the California Department of Forestry and Fire Protection (CAL FIRE), the Governor’s Office of Planning and Research (OPR), and the California Public Utilities Commission, as well as insurance providers. The meetings are set to start at the end of February.

Additional Steps Pending

The new guidelines are part of a multi-faceted program to reduce wildfire risk for California homeowners. Other steps to be implemented by the Insurance Commissioner include:

  • Providing transparency to consumers about their wildfire risk score and the steps they can take to reduce that score. Insurance companies use wildfire risk scores to determine the homes they will cover and the premium they charge.
  • Creating insurance incentives recognizing home hardening, mitigation of properties, and community mitigation actions.
  • Requiring that insurance companies seek adequate and justifiable rates to protect the solvency of the market.

Impact To Consumers

The new guidelines should help homeowners in wildfire-prone areas retain insurance or stave off significant price increases. Department of Insurance data show a 31percent increase in policy non-renewals statewide from 2018 to 2019, primarily in areas with the highest wildfire risk. Price increases and non-renewals are also climbing sharply for FAIR Plan policies, a last resort for homeowners who cannot obtain coverage through the traditional homeowners’ insurance market. 

The new standards may also help homeowners with other policy clauses. Insurance carriers are restricting coverage terms for Extended Replacement Cost, Loss of Use, and/or implementing wildfire specific deductibles. Many homes that were insured are now covered through Excess & Surplus (E&S) carriers with large deductibles.

Additional Relief For Homeowners

In addition to the proposed initiatives, California has issued a moratorium on non-renewals and cancellations. Two laws that took effect Jan. 1, 2021 may also provide relief for homeowners.

  • One-Year Moratorium on Non-Renewals and Cancellations. On Nov. 5, 2020, the Insurance Commissioner issued a mandatory one-year moratorium on non-renewals or cancellations of residential property insurance affected by the 2020 wildfire season. Consumers can go to the California Department of Insurance website to see if their ZIP code is included in the moratorium. This was done as a result of the SB 824 legislation that became effective on Jan. 1, 2019 prohibiting cancellation or nonrenewal of homeowner’s policies within one year of a declared state of emergency, based solely on a structure being in an area where a wildfire occurred or adjacent to a fire perimeter. To read MMA’s analysis and recommendations to homeowners following the Nov. 5 announcement, click here.
  • Senate Bill 872 will enable wildfire victims to more readily access insurance benefits, and it streamlines the recovery processes for homeowners. The law will also require an advance payment for no less than four months of Additional Living Expenses (ALE). Additionally, it discontinues the requirement of an itemized inventory for content claims, among other protections. On July 1, 2021, the law will expand ALE benefits for policyholders whose homes are rendered uninhabitable due to wildfire damage to essential infrastructure.
  • Assembly Bill 2756 provides additional insurance for disaster survivors to rebuild their home. It also requires more policy transparency describing the losses not covered from a wildfire. In addition, the new law reduces the burden on disaster survivors when they rebuild their home.

Reach out To MMA

If current drought conditions in California persists through Spring, the state will face another year of elevated fire risk, according to climatologists and fire experts. Marsh & McLennan Agency recommends that homeowners act now to review their policies and take action. Our team is ready to help you develop a comprehensive strategy to reduce fire risk and contain insurance costs.