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Update: California — Wildfires & PG&E

Posted By Staff writer, Tuesday, April 9, 2019

On — or around — July 1st of this year a plan to mitigate the cost of wildfire will be given to  by his Commission on Catastrophic Wildfire Cost and Recovery. One of the ideas being bandied around is a wildfire catastrophe fund.


That said, a bill in the California Legislature might beat the commission to the punch. And there’s the governor himself. He’s also thinking of his own plan and may release a proposal or two sometime this week.


Moody’s likes the idea of a state catastrophe fund and said it “appears to be the reform that is most likely to happen” and that one will have an “immediate source of liquidity for utilities addressing wildfire claims and allow for financial stability during times of crises.”


In a statement on the matter, Moody’s vice president Jeff Cassella said, “California’s application of inverse condemnation effectively turns the state’s investor-owned and publicly owned electric utilities into an insurance backstop. When wildfires occur now, investors face significant uncertainty regarding the ability of utilities to recover related costs in a timely manner.”


Standard and Poor’s and Fitch — like Moodys — want the state to do something or the credit rating downgrades will continue for the state’s utilities.


Insurance attorney James Wood worked to create the California Earthquake Authority. It was a way to spread the risk and costs of earthquake damages around. He said Democrat Sen. Robert Hertzberg and Republican Assemblyman Chad Mayes are working on a bill to create a similar fund for wildfire.


A detailed plan will likely be presented to the governor in the next month or two. Wood thinks a bipartisan plan is a huge positive and it will likely have $20 million to $30 million. Those funds will come from taxpayers, utilities and ratepayers.


John Norwood is an insurance industry lobbyist. He said the biggest problem utilities have is inverse condemnation. It puts very strict liability on utilities and says whether they work really hard to prevent their equipment from causing fires, or if they are negligent, the result is the same.


The utility is at fault.


Norwood says the big problem with a wildfire fund is funding it. “PG&E had $100 million in insurance,” he said. “If you want to go to Lloyd’s and you want a $10 billion fund, they will probably tell you it will cost you $9 billion and there is a $1 billion deductible.”


So he doesn’t see much relief for insurers in this plan and pointed to the California Earthquake Authority and how it protects individual carriers from very high payouts. But earthquakes don’t happen with regularity.


Wildfires do.


Norwood points out that 11 of the 20 most destructive fires in the state’s history happened between this year and 2015. Five of them happened in 2017. No doubt more will come this year as well.


Utilities aren’t all that excited about the feasibility of such a fund. Caroline Choi is with Edison International. She says utilities like the idea of a wildfire recovery fund but it has to be added to reforms of the inverse condemnation rules.


“Without a predictable objective process for timely cost recovery at the CPUC, the existing strict liability framework applied to wildfire damages when ignition is substantially caused by utility infrastructure has damaged the utilities’ financial health, which will result in higher customer rates,” she said.


And while the debate on a wildfire fund goes on, Judge William Alsup of the U.S. District Court for the Northern District of California says PG&E cannot pay out dividends to shareholders. The company must — instead — use that money to reduce wildfire risk.


So until it clears 375,000 trees from around power lines this year, that order will stand. “PG&E has started way more than its share of these fires,” Alsup said. “I want to see the people of California safe.”


Source: Insurance Journal — link 1, link 2

Tags:  California Governor Gavin Newsom  california wildfires  pge  wildfire cost and recovery 

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California Considers its Own Fire Insurance

Posted By staff reporter, Tuesday, February 19, 2019


Wildfire losses for the last few years have cost insurers billions and consumers billions on top of that. Losses are so great for one insurer — Merced Property & Casualty Company — that it is insolvent and now in the hands of the California Department of Insurance.


Insurers — stung by huge losses themselves — are rethinking how they insure homes and businesses. California — like other wildfire prone states — also finds wildfire to be a huge money-losing proposition.


By the way, no one is blaming insurers for their growing caution. Drought is said to be the biggest problem. Another one is forest management. The U.S. Forest Service said it just completed an aerial survey of federal, state and private land in California and found 18 million trees died in 2018.


That means California now has more than 147 million dead trees that potentially could fuel wildfires.


Even more reason — says California Insurance Commissioner Ricardo Lara — for the state to purchase its own insurance. Oregon already has its own disaster insurance. In the last 40-years Oregon has spent $61 million in premiums. Payments have been $102 million.


Recently the Federal Emergency Management Agency (FEMA) followed the same strategy. And picked up $1 billion in flood insurance. It paid off when $4 billion in bills came in after floods.


California has overspent its emergency fund for seven of the last 10-years. Two years ago the state spent close to $950 million. That’s about $450 million more than was budgeted. Last year the state spent $677 million battling fires.


That led Lara and California Treasurer Fiona Ma to suggest that the state ought to follow Oregon’s lead and that of FEMA. So instead of self-insuring, the governor, the state treasurer and insurance commissioner can negotiate for rates from private insurers.


Lara said, “It works just like your home insurance, but for our actual state.” He noted if the premiums aren’t what the state wants, it can walk away and do something different.


The commissioner thinks taking out bonds to pay for the cost of fighting fire will also be a way of giving the budget come relief. Lara also noted the state needs to be part of a bigger conversation about how to respond to wildfire.


A bill — SB 290 — has been introduced in the Legislature to allow the state to purchase that kind of insurance. It is sponsored by Democrat Sen. Bill Dodd of Napa.


“Rising wildfire suppression costs can strain California’s financial resources and threaten cuts to critical programs. As climate change continues to contribute to devastating infernos, we need a strategy to reduce the pressure on state and community coffers,” Dodd said. “This bill would do just that, allowing the state to invest in an insurance policy to ensure budget predictability and reduce taxpayers’ exposure to increasing costs associated with disasters, especially wildfires.”


The idea isn’t resonating with everyone. The Howard Jarvis Taxpayers Association doesn’t think the state ought to be buying insurance. Jon Coupal — who is the association’s president — said it puts the state in the position of subsidizing the insurance costs of those living in dangerous, at risk areas.


“If it’s not putting taxpayers at risk and it’s a way to spread the risk, it might make sense, but we’d have to see the details,” he said.


Source links: California Department of Insurance, Vox, Associated Press, Insurance Business America

Tags:  california fire insurance  california wildfires  Merced Property & Casualty 

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Update: California’s Deadly Wildfires

Posted By Staff Reporter, Tuesday, November 27, 2018

The Camp Fire that destroyed Paradise, California is 100% contained. It killed 85 people and since hundreds are still considered missing, the toll will no doubt rise.


The fire destroyed 13,000 homes and 5,000 other buildings.


Risk management analysts are predicting financial losses from $9 billion up to $13 billion.

California officials are struggling to find shelter for the thousands of people who’ve been displaced. Some are in tent cities. Others in gymnasiums, churches and in temporary structures. Disease and the spreading of disease has also becoming a deep concern.

Other officials are working on ways to somehow restore some sense of normalcy to the lives of the displaced. California Insurance Commissioner Dave Jones is working with insurers and insureds. He recently put out a news release about an online property insurance locator. The locator service is available to property owners, or the owner's legal representative if they cannot locate the property insurance policy.

The locator: https://www.insurance.ca.gov/01-consumers/105-type/5-residential/Locate-RIPL.cfm

Jones said the locator came about from legislation from Sen. Bill Monning's SB 569.

“Wildfire survivors and family member who lost loved ones in such tragic circumstances are already facing overwhelming emotions and an almost insurmountable road to recovery. Senator Monning's bill created a sensible easy-to-use online tool to help wildfire survivors and family members start the recovery process,” Jones said.

Use of the locator applies only if the property is damaged or destroyed in an area designated as a disaster by the President of the United States or the Governor.

Jones is also worried about the availability of homeowners insurance in light of the number of serious fires experienced lately in the Golden State. He said, “Homeowners in wildfire areas may find themselves shopping for coverage when rates increase or they receive non-renewal notices, as some insurers limit their underwriting. To help consumers shop for the most coverage at the best price, the department has a convenient, easy-to-use online price comparison tool available.”

The tool does not provide actual premium quotes but it does give each company’s average premium and a toll-free number and website address so consumers can ask questions about available discounts or credits, and receive an actual premium quote.


Here is a link to the tool: https://create.piktochart.com/output/14522994-cdi-homeowner-comparison-tool-infographic

Jones said the tool is important since finding an insurer in fire-prone areas of California is a growing problem. In an interview with The New York Times, Jones said, “We’re not in a crisis yet, but all of the trends are in a bad direction. We’re slowly marching toward a world that’s uninsurable.”

Adding to the problem is where a huge percentage of the state’s — and the nation’s — population lives. It’s an area called the wildland-urban interface. Or to paint a more accurate picture, they are those peaceful, scenic areas of the country where people like to live to “get away from it all.”

Of California’s 8-million homes, 3-million of them are located in the wildland-urban interface. Of the 3-million in California, 1.7 million are considered highly prone to fire. Nationwide that figure sits at about a third of all homes.

United Policyholders is a consumer advocacy group. It says a lot of homeowners in California are getting notice from their insurers saying coverage is going to be cancelled and that an insurer is going to pull out of that high-risk area. The California Legislature — has since — put a two-year moratorium on dropping policyholders after a “covered disaster.”

As you know, California’s insurance regulations make insurers justify increases with lots of data to back up the claim of rising claims as the reason. Insurers — however — think in some areas justifying increases, or dropping underwriting in those areas altogether, is justified.

Another thing insurers are doing to protect themselves is upping the number of home inspections. Houses with high risks can — and often are — cancelled or certain types of claims are disqualified. When that happens the insured has to go to a non-admitted insurer or to the industry-run FAIR Plan.

It — as you likely know — charges rates that reflect the risk.

Source links: California Department of Insurance — link 1, link 2, The New York Times



Tags:  California wildfires  insurance content  insurance industry 

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Update: The Continuing Disaster of Wildfire

Posted By Staff Reporter, Tuesday, September 11, 2018

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

Tags:  Bill Gatewood  California wildfires  industry news  insurance industry news 

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Special Report: Wildfire — Still the Hottest Story in the West

Posted By Administration, Tuesday, August 14, 2018

The country — the entire U.S. but especially the West — is on fire. At the time this is written there are 100 fires burning around the country. Most aren’t even close to being controlled. In the dry conditions faced — especially in the West — fire has become the number-one disaster focus.

A good example of just how dangerous things can get in a hurry, take a look at what happened in Redding, California where nine people died. Some because the fire moved so fast. Others died battling the blaze.


In Kennewick, Washington over the weekend a brush fire quickly exploded and within a short time burned down five houses and destroyed several buildings.


Fortunately, no one died.


Every day we see reports of another dangerous fire with accompanying evacuation orders and too few firefighters to handle the blaze. Those fires often come with fatalities.

In California the Trump administration has — at the request of California Governor Jerry Brown — declared Redding’s the Carr Fire a major disaster. So residents of Shasta County now have access to federal funds to recover.


Brown said — as he did with last year’s wine country disaster — the president quickly stepped in to help. “The president has been pretty good on helping us in disasters, so I'm hopeful. Tragedies bring people together,” Brown said.


One of the discussions that has come out of the now 20 blazes burning in California is whether to hold public utilities 100% accountable for damages from fires their equipment causes.


Pacific Gas and Electric (PG&E) wants the California Legislature to enact legislation that limits that liability if they can prove they’ve maintained their equipment perfectly, are not negligent and the fire caused by that equipment in that case is an act of God.


As it stands now, the company is on the hook for $12 billion — and probably more — in damages from last year’s wine country fires in Northern California.


Insurance companies don’t want to see California’s laws changed. It then makes them responsible for the payments for the damages caused by those fires. They have powerful interests to battle in the issue. Among them is Governor Brown who is concerned the state will lose its utilities to bankruptcy if changes aren’t made and liabilities limited.

“Our whole program of trying to deal with renewable energy and mitigate climate change would be adversely affected,” Brown said.


PG&E spokesman Steven Malnight said, “This does not mean we will not be held liable if we are found to have done something wrong. We will be and we will pay. But we are taking this opportunity to remind the public that the status quo is unsustainable.”

What PG&E wants is not sustainable for insurance.


Property Casualty Insurers Association of America (PCI) vice president Mark Sektnan said, “We still strongly support inverse condemnation. This is a basic standard and does not need to be changed. The focus of any change should be on how we can be much more careful in what we do. If there is no spark, there is no fire.”


A.M. Best suggests one solution to the problems insurance experiences in California is to re-evaluate wildfire risks. The ratings company has noted that the most destructive fires last year were in areas classified as low to moderate risk by insurers.


In its report, Best said, “While it is too early to call it a trend with two consecutive devastating fire seasons, many observers are concerned that the combination of a growing population, increased construction as new homes and businesses are built in previously remote areas, and rising long-term temperature trends statewide may represent a new normal in California.”


Those fires — the report continues — were very expensive. “Despite a loss-affected 2017, most large writers in California are larger national companies and have enough capital to tolerate these back-to-back extreme wildfire seasons, helped by reinsurance partners,” the rating agency added.


Best suggests radical changes and changes that must be implemented soon.

“Less sophisticated insurers who may have suffered losses will have to use more sophisticated analysis for decision-making with regard to underwriting and pricing.


Pricing for perils such as smoke, ash, and brush fire may have to be re-evaluated. Terms and conditions for replacement cost values and living expenses will need to be more carefully examined for underwriting and pricing decisions.


In addition, insurers have been using risk scoring models to identify areas particularly exposed to wildfires and to better establish their risk appetite and tolerances,” the company concluded.


In conclusion: “Insurers may have to re-evaluate how they view risks in California and are highly likely to adjust pricing. The wildfires in 2018 and 2017 demonstrate the essential role insurers play in the economy during catastrophe-filled times and underscore the need for prudence in capital and risk management,” A.M. Best says.

Source links: The Washington Post, CBS News, Artemis

Tags:  California Wildfires  Carr Fire  Holy Fire  Kennewick Fire  Oregon wildfires  Washington Wild Fires 

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