Needed: Affordable insurance in fire-prone areas

It’s disappointing to see certain consumer groups oppose AB 2167, a bill that could help homeowners find better insurance coverage, and at lower prices — especially in the wildland-urban interface areas hardest hit by catastrophic wildfires.

As Gov. Newsom has said, “The hots are getting hotter, the dries are getting drier and the wets are getting wetter… one thing we know is that our approach to dealing with wildfires has to adapt to a climate that is changing very, very dramatically.”

The severity of recent wildfires, and the magnitude of insurance losses, has been so high that most insurance companies have understandably retreated from offering policies in wildland-urban interface areas. AB 2167 is a creative and reasonable attempt to get them back.

Insurers would obtain access to the latest data analysis and rating tools, which are already being used by the California Earthquake Authority and the California FAIR Plan

As currently amended —after months of compromise and negotiations— this bill would create a new Insurance Market Action Plan, or IMAP, designed to increase home insurance availability with better coverage and lower rates, and reduce the risk of catastrophic wildfire damage through home hardening and community mitigation.

For many homeowners in high-risk areas, the FAIR Plan is currently the only option for fire insurance. It is also the most expensive option, with overall rates increasing by 20% in April 2019 to reflect wildfire-related losses and repairs in those areas. FAIR Plan policies provide consumers with significantly less coverage than policies offered by admitted insurers.

AB 2167 addresses this issue by requiring participating insurers to provide, and renew, coverage to homeowners in high-risk areas at an affordable rate. Insurers would newly obtain access to the latest data analysis and rating tools, which are already being used by the California Earthquake Authority (CEA) and the California FAIR Plan to set rates that fairly and objectively reflect the risk of a given area.

Nothing in AB 2167 would eviscerate or even diminish governmental regulation of insurance companies or essential consumer protections. The Insurance Commissioner would still be required to approve all insurance company rates and rating plans, and he would retain his authority to ensure that rates could not be excessive, inadequate or unfairly discriminatory. He has the power to say, “No.”

Given the complete lack of affordable homeowners insurance coverage in many parts of our state, it’s hard to imagine how this proposal could make things any worse.

For these reasons, the opposition of groups claiming to advocate for consumer interests is puzzling. This bill attempts to increase the number of insurers again offering policies in wildland-urban interface areas, so consumers benefit from more control and policy choices.

But consumers won’t have to depend on the insurance industry to tell them whether this program works, because the bill would also require the state’s Legislative Analyst’s Office to scrutinize the results and measure the return of insurers to areas where affordable coverage options have evaporated. These provisions will clearly show whether this program works or not.

Given the complete lack of affordable homeowners insurance coverage in many parts of our state, it’s hard to imagine how this proposal could make things any worse. It could only make the marketplace better—which is why the California Assembly voted overwhelmingly—61-3—in favor of this bill.

This is not a solution that can wait. Many high-risk counties were protected under a non-renewal moratorium after the devastating wildfires of 2017 and 2018. However, those protections were put in place only as stopgap, and expire at the end of this year. We need a long-term solution to help the many who are suffering the consequences of insufficient availability and affordability in the insurance market.

With the statewide threat of wildfires growing rapidly, we need a legislative solution—now. Enactment of AB 2167 would be a good, pro-consumer step in that direction.
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Editor’s Note: Bob Teshima is an Insurance Broker and Secretary/Treasurer for the Independent Insurance Agents & Brokers Association of California (IIABCal).