Homeowner’s Insurance - Another Casualty of Wildfire
Wildfires are a devastating force that not only can threaten lives and landscapes but also have far-reaching financial implications for homeowners. One such impact on those living in wildfire-prone areas is the effect on homeowners’ insurance rates. Here are few different ways wildfires can and have influenced these rates.
Risk Assessment Increase
Insurance companies spend a lot of their resources on assessing risk in certain areas when determining premiums. A location with high risk of wildfire is pretty much guaranteed to carry a higher calculated risk assessment profile that a location with a lower risk level. Some factors that can influence this are proximity to wooded areas, historical fire data, and local firefighting infrastructure. Homes sitting a high-risk zone, where wildfires have occurred in the past or where vegetation can fuel fires, and will more likely face higher premiums due to the higher likelihood of damage.
2. Insurance Claims and Payouts
If wildfire reaches property, they can sometimes result in extensive property damage or even total loss for affected homeowners. Insurance companies must cover the losses assuming they are the provider. The coverage for these losses can be substantial depending on the scale of the fire and value of the property. The frequency and severity of wildfires in recent years have prompted some insurers to reassess their financial exposure. This reassessment has led to either adjustments in premiums driving them higher, or completely dropping insurance coverage in high-risk areas once a contract has expired.
Insurance companies putting a stop to writing new insurance policies has started to become a more widespread phenomenon - especially in states like California. In late 2022, Allstate quietly stopped writing new policies for homeowners in California. An Allstate spokesperson stated that “the cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes and higher reinsurance premiums.” In mid 2023, State Farm also announced that they would no longer accept new applications for all business and personal property insurance. While we haven’t seen insurance providers pull out of Colorado, we have been seeing a significant increase in the requirements providers ask of homeowners in order to acquire insurance. The biggest ask of homeowners is to pay for wildfire mitigation services to protect their home and lower insurance companies’ risks.
3. Mitigation Measures and Discounts
Insurance companies have been incentivizing homeowners more and more to mitigate wildfire risks through various measures. Some of these measures include fire-resistant roofing, clearing flammable vegetation near properties, maintaining defensible zones, and installing fire-resistant gutter guards. Some insurers offer discounts or credits for implementing these precautions, some require it to get insured in the first place.
4. Legislative and Regulatory Changes
Government and community responses to wildfire risks can also impact insurance rates. State and local regulations regarding land use, building codes, and firefighting resources can impact insurers’ risk assessments and pricing. Changes in legislation aimed at improving fire preventing or bettering response capabilities may indirectly affect homeowners’ insurance costs by lower their risk profile.
Here at Flatiron Fire Defense, we’d love to work with you and your insurance providers to see how we can save you money.