How to Afford Fire Insurance in California

Mon Jan 11 2021

For the last three wildfire seasons (2018, 2019, and 2020), Californians have seen extremely high wildfire activity.

How high? The Camp Fire racked up $16.65 billion in claims and expenses. And the damage from the 2020 wildfire season is still being tallied, but estimates put it in the $10 billion range.

The rising costs of damage from wildfires means that insurance providers are paying more in claims, which means they’re turning to their insurance providers – called reinsurers – with more claims on their policies. These reinsurers, which insure insurance companies, are feeling the pinch.

That’s because reinsurers pay out not just for wildfire claims but also for other disaster-related claims: hurricanes, floods, typhoons, etc. So in years when several severe weather events cause serious damage around the world, reinsurers get hit hard.

To manage their risk exposure, they typically raise prices for their customers (insurance companies), who in turn raise prices for homeowners or send nonrenewal notices, effectively canceling homeowners policies. In fact, nonrenewals in California have increased more than 31 percent since 2019.

Obviously, this is a problem for those who live in areas with wildfire risk exposure. The good news is that if your current insurance provider sends you a nonrenewal notice or raises premiums beyond what you can afford, there are steps you can take to keep yourself covered for wildfire damage.

Is Fire Insurance Mandatory in California?

Before we get to steps for finding more affordable fire insurance, let’s first address another question: do you even need it? While there is no state-level law requiring homeowners to have fire insurance, most mortgage lenders do require it as a condition of the loan. So if you have a mortgage on your house, it’s safe to assume that fire insurance is mandatory.

Even if you own your home free and clear, carrying fire insurance is the safest option. Fires can spark from shorted-out appliances, lightning storms, neighbors’ candle use, and dozens of other activities you have no control over. Fire insurance helps make sure you and your family can live normally even if a disaster hits.

Fire insurance is included in most standard homeowners insurance policies.

Now let’s take a look at how California homeowners can find affordable fire insurance.

1. Shop Around for Fire Insurance

It’s a good idea to shop around for fire insurance even if you don’t live in California – or if you live in a region of the state that’s not prone to wildfires. In fact, it’s a good idea to shop around for just about everything, and fire insurance is no exception.

  • Search online. Some newer insurance providers (like us!) sell directly to customers and don’t work with outside brokers to keep costs low. We’re also able to offer better rates than traditional insurance companies because we build risk models based on granular data, which lets us price coverage on a per-homeowner basis.
  • Ask friends for recommendations. If you have friends and family in California, ask them about companies they’ve worked with to insure their homes. Once you have a list of recommendations, start gathering quotes to compare.

Ideally, once you’ve explored additional coverage options, you’ll find one that works for your home and your budget. If you don’t, move on to the next step.

2. Consider Non-Admitted Fire Insurance Carriers

Most of the insurance companies you’ve heard of are “admitted” carriers, which means they’ve been approved by a state’s insurance department. If the carrier went bankrupt, the state would cover payments for claims on active policies.

Non-admitted carriers are not approved by a state’s insurance department. They’re less regulated so they can take on more risk. Non-admitted insurance carriers may be the only workable solution for someone in a high-risk wildfire zone.

Non-admitted carriers are also sometimes called surplus carriers or specialty carriers. If you’re unable to find fire insurance through admitted carriers for your California home, see what some non-admitted carriers offer.

3. Call the California Insurance Helpline

If even after considering non-admitted carriers you can’t find a fire insurance policy to cover your home, it’s time to call California’s insurance helpline at 1-800-927-HELP.

This line is maintained by California’s Department of Insurance and is designed to help California residents figure out how to find adequate insurance. A helpline worker might point you toward the FAIR plan.

4. Consider California FAIR Plan Fire Insurance

The California Fair Access to Insurance Requirements (FAIR) plan is an insurer of last resort. Its website explicitly states that it is designed only for those homeowners who have made a “diligent effort” to find coverage elsewhere.

If you can’t find that coverage, though, the FAIR plan may be able to offer the fire insurance you need. If you do go this route, it’s important to understand a few things:

  • You’re responsible for knowing how much coverage you need. This isn’t what you’d experience with mainstream insurance providers. At a provider like Kin, you’d work with a representative who would help you understand the value of your home, your risk exposure, and the amount and type of coverage you need. In other words, the insurance provider is the one who worries that you’re getting enough coverage. Not so with the FAIR plan. If you get insurance through FAIR, you’ll have to calculate yourself how much coverage to get. You may want to work with an insurance broker to do this. Luckily, the California FAIR plan’s website explains how to find a broker.
  • California FAIR plan fire insurance doesn’t cover theft or liability. In this way, it’s different from standard homeowners insurance, which includes coverage for both theft and liability. If you purchase a policy through the FAIR plan, be sure to consider additional coverage to manage your other risks.
  • California FAIR plan coverage is limited to $1.5 million. If the cost of rebuilding your home is more than that, you’ll have to find supplemental coverage or attempt to self-insure by saving enough cash to make up the difference.

What to Expect from California Fire Insurance Prices

If you live in California and haven’t yet heard from your homeowners insurance provider, you may be one of the lucky ones – it’s possible your policy will be renewed with no major premium increases. In fact, many homeowners in areas recently impacted by wildfires may be protected from cancellations or nonrenewals for a year. Insurance Commissioner Richardo Lara placed a freeze on nonrenewals for wildfire risk for one year from the date of the area’s emergency declaration.

Individual cases may vary, though. One woman interviewed by the Wall Street Journal noted that, after getting a nonrenewal notice for a $2,350 policy, the only replacement policy she could find cost $18,000.

While that cost is extreme, it is likely less than the cost of rebuilding your home from scratch without insurance.

If you’re curious about whether Kin can cover your California home, enter your address to find out.