CA wildfire insurance ‘loophole’ affecting Bay Area survivors drops from carrier

SAN FRANCISCO (KGO) — A state law aimed at helping Californians get affordable wildfire insurance is being used as a stopgap measure, affecting Bay Area residents who live in high-risk areas.

The the order issued by the state insurance commissioner Ricardo Lara in February mandated that all insurance companies offer discounts to California consumers to reduce the risk of wildfires – also known as “drying your home.”

“It’s the only way we can reduce the risk for Californians to keep insurance,” Lara said.

If approved, the law will take effect at the end of the year. The proposal includes benefits, such as requiring insurance companies to provide consumers with the “risk” of their property and creating a right of appeal.

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A possible ‘loophole’

But critics like Consumer Watchdog argue that the law has a way to go.

And Bay Area families seem to have settled into it.

“There were no questions. They said, ‘You’re done. You have no choice,'” said Santa Rosa residents Mark and Alma O’Brien.

Longtime insurance provider AIG dropped them when the company announced in January that it was pulling out of the government for other insurance market segments.

“So we’ve been left scrambling. We’ve been trying to get some insurance,” Mark O’Brien said. “I’ve been to three or four different carriers and I’ve been turned down.”

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The O’Briens tested Farmers, State Farm and AAA Insurance.

“They both rejected us,” he said. They go, ‘What’s your address?’ And you hear this dead breath.

Alma and Mark had not made a decision. But, since the Glass Fire tore through their Napa County neighborhood two years ago, burning 60 homes on their street — they’ve made investments to reduce the risk of fire.

“We added vulcan vents, roof sprinklers, and gutted our house,” Mark O’Brien said. “In addition, they cut down all the trees in the house and installed hardscape in the entryway.”

It’s the same story with their neighbor, Harriet Buckwalter.

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“My husband cuts trees about six weeks straight,” she said. “We spent another $4,500 to do the tree removal that we couldn’t do and gut our whole house. Plus, CALFIRE came out to inspect.”

Buckwalter says he has contacted 25 different insurance companies, but none of them write policies in this area.

In February, Lara issued a law that aims to prevent this – promising that wildfire insurers will be required to consider the practice when issuing a new policy.

“If the insurance companies take into account the severity of the building, then it will show the real risk, which they are not doing,” said Lara. “So we’re saying with this new law, insurance companies need to think about this.”

But the problem is that people like the O’Briens and Buckwalters still don’t get insurance.

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“That’s the biggest problem with this law that will destroy its promises,” said Carmen Balber, director of the nonprofit Consumer Watchdog.

Balber says that while the law sounds good on paper, it doesn’t tell the whole story.

“There are two levels of insurance. First, insurance companies decide whether to sell you treatment. And second, they decide the price they will pay you,” said Balber. “This law affects cost, which is important to all of us, but it doesn’t answer the question of the product – whether you will get the policy or not.”

In other words: insurance companies don’t need to think about mitigation measures when choosing to sell policies to consumers. Therefore people living in areas that are at risk of fire can be left unprotected.

Even former state Insurance Commissioner Steve Poizner wasn’t made redundant by his carrier, despite spending thousands of dollars on downsizing, according to an op-ed published in the LA Times.

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It is the same story with these families.

“I don’t know anyone who got insurance,” Buckwalter said, referring to his network in Santa Rosa.

“We’re stuck,” O’Brien said.

Both families told ABC7 they have one real option left: the California Fair Plan.

The California Fair Plan

The California Fair Plan is the state’s ultimate insurance policy, providing access to fire insurance for California homeowners who cannot obtain insurance through the traditional market.

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“It’s very confusing,” Mark O’Brien said.

And it’s not cheap.

“It’s less than double what we paid before, and less,” O’Brien said.

“Our coverage is about three and a half times what we had before, and it’s a $20,000 deductible,” Buckwalter said.

Buckwalter says that without the deductible, the California Fair Plan would have been seven times more expensive than its existing plan.

Ricardo Lara: “The FAIR program must be affordable and accessible to every Californian who needs it.”

Stephanie Sierra: “The problem is, it’s not cheap and it’s not enough. What are you doing to change it?”

Ricardo Lara: “What we need to do is to provide a more comprehensive policy that is not currently in the FAIR plan, so that people do not have to pay a lot of administrative costs that only increase the cost.”

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Eliminating regulatory fees is one step, but consumer advocates argue that unless the rules are changed, the process will leave the most vulnerable communities suffering.

Consumer Watchdog, along with many other consumer organisations, have sent a number of letters asking the Commissioner to use his powers to block what they see as ‘non-renewables.’

The Department of Insurance denies the claims, adding that the law would still require insurance companies to recognize and reward consumers by reducing deductibles. But it will not require insurers to offer a policy based on those efforts.

What’s next

The ABC7 News I-Team asked if Commissioner Lara would change the law to make that change.

We were told: “Commissioner Lara can take action according to the law and will consider all the people who can use it. We encourage people to talk to the Department of Insurance, who will look into their non-renewal.”

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The department also cites the following as expectations of these regulations:

  • Promoting mitigation activities for people and communities by requiring insurers to consider reducing property and people in the event of a wildfire;
  • Reducing the risk of wildfire losses;
  • Improve accuracy in wildfire risk categories and rates and payments;
  • Increase transparency, and consumer awareness of insurance costs and/or wildfire risk scores;
  • Improving consumer protection by implementing a consumer appeals process;
  • Reducing unfair discrimination by improving the conduct of wildfire insurance and/or accident scoring; and
  • Improving the availability and affordability of property casualty insurance for people and places where bushfire mitigation measures have been implemented.

The law is expected to come into effect before the end of the year.

Contact the department’s purchasing contact center Here.

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