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February 5, 2019

Understanding wildfire losses and California insurance legislation

In 2018, the state of California began enacting insurance legislation to support homeowners impacted by wildfire with recovery and rebuilding efforts. 

If you are a California property owner navigating today’s complex insurance marketplace, understanding the impact of these laws on your existing homeowners policy and future coverage options is important.

Will this impact me?

If you experienced a total loss of your home in a declared disaster occurring after September 21, 2018, Senate Bill (SB) 894 requires insurers to provide you with certain extended policy provisions. These provisions require insurers to offer to renew your home policy for the next two annual renewals (over the previous one annual renewal), or no less than 24 months from the date of loss. It also extends additional living expense coverage from two years to three years.

If your home was underinsured at the time of the loss, the legislation gives you the option to combine your other structures coverage limit (typically used to cover buildings or structures that are separate from the home, such as a detached garage or guest cottage) with your primary dwelling coverage to help offset some of the loss. Homeowners qualify for this option only if: (a) the home is considered a total loss, (b) the total loss occurs as part of a declared disaster, and (c) your primary dwelling is underinsured.

If your home is located in an area where a wildfire occurred, whether or not you experienced a loss, SB 824, which took effect in January 2019, prohibits your insurer from cancelling or non-renewing your homeowners policy within one year of a declared state of emergency occurring after  (based solely on a structure being in an area where a wildfire occurred and in a zip code within or adjacent to a fire perimeter).  

In response to SB 824, in December 2019 the California Department of Insurance (DOI) released an official bulletin detailing the zip codes and qualifying factors  for the mandatory one-year non-renewal moratorium. In addition, the California DOI asked insurers to voluntarily stop all non-renewals related to wildfire risk statewide until Decebmer 5, 2020. The overall impact of these recent bulletins is still being assessed, but will provide relief for some homeowners facing non-renewal.

What other legislation was enacted to assist homeowners impacted by wildfires?

Additional legislation was enacted in conjunction with SB 894 in September 2018. Assembly Bill (AB) 1772 increases the timeframe a homeowner has to rebuild their home after a total loss from two years to three years, without a reduction in replacement cost coverage on their policy. AB 1800 clarifies existing law to protect homeowners who choose not to rebuild at their home’s original location, prohibiting insurers from limiting coverage on the basis that the policyholder chooses to rebuild or purchase a home already built at a different location.

Other bills enacted in 2018 addressed a variety of insurance-related topics, including mandating electronic delivery of policy documents after a declared disaster, establishing an online insurance locator tool, and changing certain statute of limitation periods.  

In October 2019, AB 1816 was enacted, requiring insurers to provide homeowners with 75 days advance notice if their homeowners policy will not be renewed, an expansion of the current 45- day requirement. This will be effective starting with policies that renew July 1, 2020 and after.

How have these bills impacted the insurance market?

Every homeowner’s situation is different, and no two losses are alike, so how the legislation affects each individual’s policy and claims settlement may vary. Marsh McLennan Agency Private Client Services (MMA PCS) is actively monitoring the current claims landscape to see how our core insurers are implementing changes in their claims settlement practices as a result of legislation.

Some insurers have announced significant rate increases in order to offset higher losses as a result of the wildfires. Other insurers are choosing to update their underwriting guidelines and write fewer new policies in high-risk areas. This translates into less coverage availability for homeowners seeking alternative insurance for properties in high-risk areas. Some insurers are also exercising their option to non-renew or cancel policies on homes not exempted by these new laws.

Policyholder considerations

During this challenging time of change in the insurance marketplace, there are some steps homeowners can take to avoid prompting a mid-term policy cancellation or non-renewal:

  • Avoid a policy lapse by making payments on time.
  • Ensure that both MMA PCS and your insurer have your current billing address and contact information on file. If you haven’t completed a comprehensive review of your personal insurance program in two or more years, schedule one with your insurance advisor.
  • Consult with your insurance advisor prior to submitting a claim on your homeowners policy to consider the potential impact on future insurability.
  • Discuss any home renovation projects with your insurance advisor early in your planning stage and do not begin construction until you have successfully secured insurance for the full period of construction. Home renovations can change the risk profile of a property which may trigger a mid-term cancellation or non-renewal, so it’s important to talk to your insurance advisor about any project plans.
  • Speak to your insurance advisor prior to turning your primary home into a secondary residence. A change in occupancy may be considered a change in risk profile, which can trigger a mid-term cancellation or non-renewal.

How can MMA PCS help?

For clients facing non-renewal or cancellation of their insurance coverage, MMA PCS may be able to assist. We have access to a wide variety of excess and surplus (E&S) insurers if coverage is unavailable in the standard insurance market.

Many states allow E&S insurers, also referred to as non-admitted insurers, to transact business in their state if there is a special need that cannot or will not be met by standard (i.e., admitted) insurers. It’s important to note that E&S coverage can be costly and is not protected by the state guaranty fund for claims. However, it does provide insurance options for high-risk properties.

If you are contemplating a major renovation, have concerns about obtaining insurance coverage in California, or have received a non-renewal or cancellation notice, an MMA PCS personal risk advisor is available to help you navigate the complexities of the marketplace.

For more information, please request a home quote.