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California homes in at-risk wildfire areas may become uninsurable: Report

11th July 2018 - Author: Matt Sheehan

Reconstruction efforts are underway in California following the devastating October 2017 wildfires, but many commentators and re/insurance experts have begun to question the prudency of rebuilding and re/insuring homes in these hazardous areas, according to a report by the Columbia Law School.

wildfireApproximately 250 wildfires sparked in Northern California on the night of October 9, causing more than $9.4 billion in economic damage and 44 fatalities.

Amongst these was the Tubbs Fire, which razed nearly 5,000 homes and was the most destructive wildfire in California’s history and the largest urban conflagration in the U.S since the 1906 San Francisco earthquakes.

Now, as new homes start to reappear on the burned lots, there are concerns that insuring these properties won’t continue to be financially viable given the rising frequency and severity of wildfire losses.

A December 2017 report from the California Department of Insurance (CDI) observed that insurance premiums and wildfire surcharges have already increased significantly across the state, with several major insurers no longer writing new policies or renewing plans in areas with high wildfire risk.

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Additionally, recent studies by researchers at the National Academy of Science have shown that climate change is already leading to longer, more active fire-seasons in the western U.S, and these heightened risks are only likely to be exacerbated as further changes to the climate become more pronounced.

Nevertheless, people are still returning to these high-risk areas due to both emotional attachment and the high property value of many lots, but the CDI’s report warns that there is no guarantee that insurance coverage will continue to be provided for these new properties.

California law prohibits insurers from cancelling a policy while a residence is being reconstructed following an insured disaster, which may lead affected residents to assume they will remain protected after rebuilding their homes.

However, the CDI warned that, in reality, insurers may refuse to renew a policy once the mandatory term expires, leaving residents with only temporary coverage.

Although fall-backs such as the state-sponsored California FAIR insurance plan exist, this would entail high premiums and coverage limits for affected resident, and would negatively impact the state economy.

Other options, such as reducing the underlying fire risk though strategies like underground electrical infrastructure, vegetation management, building fire-resistant homes, and building fire breaks may also prove extremely costly for residents.

Whether properties in these areas remain insurable or not, it seems inevitable that residents and property owners in California will be worse off after rebuilding, either due to higher premiums, more prevention scheme costs, or lack of coverage.

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