When the 2018 West Fire swept across Alpine, California, a small town in the foothills east of San Diego, firefighters were stationed outside Emily Ziegler’s home where she lives with her husband and three children.
The fire destroyed dozens of homes in its path, but the family home — which includes a garage and a granny flat on more than five acres near the Cleveland National Forest — escaped unharmed.
However, getting affordable home insurance has become a challenge. The family’s policy with USAA doubled to $8,000 last year, and when Ms. Ziegler called other insurers looking for a cheaper deal, they all gave her the same advice: Stick with your existing policy.
“In our area, there is a limited number of people who buy insurance, and they will only buy insurance for a limited number of houses,” said Ms. Ziegler, 44, a forensic psychologist. “I have no other options.”
For homeowners living in California and other disaster-prone states, including Louisiana and Florida, the options are shrinking. Just last month, State Farm, the largest insurer in California, said it would no longer be writing new homeowner policies there, citing the rising cost of rebuilding, increased exposure to disasters like wildfires, and the rising cost of the insurance it sells concludes for himself in order to offload them some financial risk. Last year, the company joined the pullbacks of Allstate, California’s fourth-largest insurer, and AIG, and before that Nationwide.
“The new normal means paying more attention to insurance than you’d like or have done in the past,” said Amy Bach, executive director of United Policyholders, a consumer advocacy group.
Even outside of the areas most vulnerable to the rising frequency and cost of weather-related disasters, insurance prices are expected to continue rising: According to S&P Global Market Intelligence, premiums nationwide rose 12.4 percent in the first quarter, the highest increase in almost two years decades.
When it is difficult to get traditional insurance
Finding a policy at a reasonable price is an increasingly complex and risky calculation. The usual household and tenant insurances do not cover all risks. For example, forest fires are usually contained, but floods and earthquakes usually require separate insurance. In hurricane-prone areas, wind and hail insurance may include its own deductible — or be a separate policy.
In fact, homeowners who are struggling to get policies through traditional, state-regulated carriers like State Farm may have to turn to another provider, even temporarily.
Most states have some form of “last resort,” but plans vary in design, cost, and scope. Most states have what are known as FAIR plans, an acronym for “Fair Access to Insurance Requirements,” which are set by the state but generally supported by private insurers. They offer basic insurance — at a higher cost, in part because they take on the riskiest customers — and homeowners may need to buy additional policies to fill gaps.
More Californians are expected to continue turning to their state’s FAIR plan. And in Florida, the FAIR plan became the largest insurer last year, covering more than 15 percent of homeowners by the end of 2022, according to the Insurance Information Institute, a trade group. Colorado last month passed legislation creating its own version that would insure homeowners for up to $750,000.
Non-traditional options exist, but they have their own fine print: specialty insurers sell policies in higher-risk areas that are lightly regulated and, unlike traditional insurers, are not backed by government guarantees. In other words, if they fail and cannot pay the debt, the homeowner gets nothing. (An insurer’s financial strength can be determined by companies like AM Best.) These carriers also don’t have to submit their rate increases to states for approval like regulated insurers do.
“People are turning to it because it’s there, and they’re desperate,” said Douglas Heller, director of insurance at the Consumer Federation of America. “However, it is important for consumers to know whether the insurer they sign up with is protected by the State Guarantee Fund in the event of bankruptcy.”
Reduce risk and strengthen your home for disasters
After homeowners understand the dangers in their area – sites like Risk Factor can help – they can take steps to reduce the potential damage and hopefully their insurance premium. You could even call your insurer to find out if your property has a risk rating and ask if there are any ways to improve it.
In California, a new law requires insurers to tell homeowners their property’s wildfire risk rating and what they can do to reduce it when they apply for a policy. Last year, the Insurance Institute for Business & Home Safety, a research group, introduced the designation “Wildfire Prepared Home,” which lists a list of measures that can be taken to “harden,” or strengthen, a home against wildfires. After these requirements are met, the group sends an auditor and issues a three-year certificate that can be used for possible insurance discounts. The title costs $150.
“Insurance companies want to see that remedial action has been taken, and often it’s a series of actions, not just one,” said Roy Wright, executive director of the institute and former executive director of the National Flood Insurance Program.
According to the Insurance Information Institute, hazard mitigation measures can reduce premiums by 5 to 10 percent in different parts of the country.
Ms. Ziegler and her husband, Louie Garcia, are doing what they can to make their home less vulnerable to wildfires. They have a “defensible space” around most of their home free of vegetation and other combustible materials, and Mr. Garcia replaces the wood paneling with fiber cement panels. They also rebuild their wooden deck with fireproof materials.
Damage control costs may vary. Replacing a cedar roof with metal, concrete, or asphalt can be expensive, but fire-resistant, mesh-covered vents that keep embers from entering the home, for example, can cost as little as $50 each.
All of these measures are more effective when implemented community-wide. Living in a community that is a “Firewise USA” community, according to the National Fire Protection Association, can help generate insurance rebates.
Other cost-saving strategies
Most people are advised to have sufficient insurance to rebuild their home to meet building code requirements. Make sure the policy covers replacement value and not actual cash value. The high clean-up costs are responsible for much of the premium increase, but there are strategies you can try to lower your premiums.
Many homeowners resort to standard tactics, including raising their deductible or reducing coverage for other buildings such as garages or their home and personal belongings.
Some larger providers offer deductibles as high as $5,000, while specialty insurers can be as high as $10,000, said Pat Howard, home insurance expert at Policygenius. “Right now, opting for a high-deductible policy is probably the most powerful thing you can do to lower your bill.”
But that also means you can’t make any claims below that amount, making an emergency fund all the more important. And in the most disaster-prone regions, including the Gulf Coast states and parts of Long Island, wind damage deductibles are already sky high, making it impractical to raise them any further.
How to scour the insurance market
In an online world where middlemen are increasingly being eliminated, this is a situation where an experienced broker can help. “In this market,” Ms. Bach said, “it’s very difficult for a consumer to shop alone.”
Some experts suggest searching the market in two different ways: get at least one quote online and one through a broker who sells exclusively through an insurer. Then contact an independent broker who will be able to screen multiple providers and match you with the best insurer for your situation. Investing time in this exercise every few years (or every year if you don’t have a traditional policy) can help ensure your insurance coverage is in good shape.
When buying a home, start your search early. In higher-risk areas, real estate agents are requiring homeowners to get insurance before the closure, said Janet Ruiz, an industry expert at the Insurance Information Institute.
Mr Howard of Policygenius said he would even put an emergency clause in new home listings – meaning if you don’t get insurance or don’t have adequate coverage, you can go out of the deal. “You’ll see that a lot more often,” he added.