Insurance Availability and Affordability under Increasing Wildfire Risk in California

In the past several decades, large wildfires in the western United States have become more frequent and more severe. Although many wildfires take place in forested areas far from where people live and work, some recent fires have had devastating consequences for communities. The 2018 Camp Fire, for example, caused 85 deaths and destroyed nearly 19,000 properties in the town of Paradise, California. Of the top 10 fires in insured losses in the United States, eight have occurred since 2017.Insurance is an important tool for recovering from natural disasters, including wildfires. Unlike floods, which are covered through separate flood insurance policies, wildfire damage is covered primarily through standard property and casualty insurance policies (homeowners and renters insurance). Homeowners insurance policies cover damage to the property itself, loss of contents, such as furniture, clothing, and other personal items, and sometimes additional living expenses if a house is destroyed. Lenders require that any home with a mortgage have homeowners insurance.California’s growing wildfire risks have created challenges for its insurance markets in recent years, characterized by rising premiums and deductibles, declines in coverage, and sometimes even policy discontinuance (Dixon et al. 2018). When homeowners are unable to obtain insurance through the private market, they can turn to the state’s Fair Access to Insurance Requirements (FAIR) Plan, a pool made up of all insurers authorized to operate in the state. Thirty-three states and the District of Columbia have FAIR Plans, which are generally considered insurers of last resort. In California until 2016, homeowners had to show that they had been turned down by three private insurance companies before they could get a FAIR Plan policy. FAIR Plan policies tend to be high cost and provide substantially less coverage than standard policies. For example, they typically do not offer liability coverage.In this issue brief, we provide background information and analysis of insurance coverage in California, including policy nonrenewal rates, the number of FAIR Plan policies in force, and average premiums for both private insurance and FAIR Plan policies. We analyze these data at the ZIP code level for 2003–2019 and provide summaries of insurance outcomes by wildfire risk classifications to better understand the extent of the problems in high wildfire risk areas vis-à-vis other areas of the state. Finally, we analyze insurance nonrenewals by four alternative measures of social vulnerability.