Bill Gatewood is the corporate vice president and director of personal insurance for Burns and Wilcox. Speaking about wildfires — and the California wildfires specifically — he said many of the insured having damages from wildfires are underinsured. This is a problem that can be solved in the future by insurance agents who are educated in proper insurance techniques.
With that he issued some advice for agents and brokers and put the problem of California wildfires — and wildfires in the other wildfire prone states in the West — in perspective. “Agents and brokers need to properly educate and counsel their clients on the differences between replacement costs of a home and the real estate value of a home because they can be very different,” he said.
Plus, Gatewood noted the construction industry — from building to lumber to supplies — is not able to keep up with the demand for rebuilding or repairing homes and businesses harmed by those fires. That is going to increase costs so insurance policies need to reflect that fact.
Another result of the fires — Gatewood notes — is big changes in the insurance marketplace. “We have insurance carriers who are limiting the amount of business they’re writing in these wildfire areas of California. We’ve had carriers leave a particular segment of the marketplace, and insurance companies are changing their underwriting guidelines and appetites, so I think it’s really important that agents and brokers in California are really in tune with what’s going on in the market,” he added.
While companies aren’t threatening to leave areas of the other Western states, this advice is still good for agents in those states.
“Proper insurance to value is really a big part of what agents and brokers are there to do, to provide that expertise to make sure that client has enough insurance to replace their home,” he said. “It’s something that not a lot of insurance buyers understand. They know what their house is worth from a sale perspective, but what their house is worth or the amount that they have on their mortgage really has no significant bearing on what it’s going to cost to rebuild that house, particularly when we’re dealing with total losses like this.”
California Insurance Commissioner Dave Jones says the insured residential and commercial losses from the state’s Carr and Mendocino Complex fires will end up close to $845 million. He says they now rank among the most destructive wildfires in California history.
Jones blames global warming.
“Our wildfire history tells the story of how our fire season has changed over the years from a four-month season to a year-round threat. Over the past two decades, the frequency and severity of wildfires has increased and caused significant property damage and the tragic loss of life in the wild land-urban interface areas of the state. Even more troubling is that areas once considered not to be high risk are now being scorched by wildfires,” he said.
A report from a wildfire review from Allianz called Burning Issues says 3.6 million residential properties lie within the state’s urban-wilderness boundary. More than one million of them are dangerously exposed.
As of last week there were more than 4,000 wildfires burning in California. Countless more are burning in the other states in the West. The California fires have scorched — so far — 600,000 acres and is more than quadruple the five-year average.
The California Department of Insurance says the Carr and Mendocino Complex fires destroyed over 8,800 homes and 329 businesses. They also totaled over 800 private autos and commercial vehicles. Other types of property are also added to the over 10,000 claims that have been filed.
Those totals are shared with dozens of the state’s larger fires and the larger fires in other states.
Jones worries that the destruction will not stop there. In a new report titled Trial by Fire: Managing Climate Risks Facing Insurers in the Golden State, Jones said,“We should remember that the vast majority of California's most destructive fires occurred after September 1st, and fire experts tell us that the worst fires for 2018 may still be ahead of us.”
The same goes for other states.
Most of the blame for fire is humans. The University of Colorado in Boulder did a study and found 84% of the fires in the two-decades before 2012 were human caused.
The university also came up with these frightening statistics. The number of wildfires per year larger than 100 acres:
• 1980 - 1989 — 140
• 1990 - 1999 — 160
• 2000 - 2012 — 250
The length of the wildfire season:
• Early 1970s — 5 months
• Today — 7+ months
By the way, one of the main causes of fires in the Golden State is equipment owned by the state’s public utilities. One utility — PG&E — is now liable for something like $1.5 billion for damages and deaths in a couple of last year’s fires in wine country.
It and other companies want a change in the strict liability law that says they’re not liable if they maintain their equipment properly and acts of God — so to speak — cause them to fail. Insurers would then be on the hook for the damages and oppose the push.
Apparently so did — even though Governor Brown supported the idea — the California Legislature. What the Legislature has done for the power companies instead is pass a law that allows them to charge their users fees and to sell bonds to cover those losses. That doesn’t work for a lot of consumer advocates nor did it work for the Utility Reform Network head Mark Toney. “This is a bailout in sheep’s clothing. PG&E gets to bill for costs resulting from negligent and even criminal behavior,” he said.
California Senator Bill Dodd disagrees. “This is about protecting ratepayers, not helping utilities. The fact of the matter is ratepayers would be hurt in a utility bankruptcy.”
Source links: California Department of Insurance, Insurance Business America, Carrier Management, PropertyCasualty360.com, Insurance Journal