Disasters driving cost of homeownership through the roof



October 29, 2019 - 10:35 AM

Firefighters survey the destruction from the Kincade fire after it jumped Chalk Hill Road near Healdsburg, Calif. on Sunday morning.

The California wildfires have us all wondering what we would do in a similar situation. 

The fires are leaving a charred path of destruction in both northern and southern California, affecting hundreds of thousands. 

As the most populous state in the country, the sheer volume of people complicate escape routes. Most Kansans can’t relate to bumper-to-bumper traffic jams eight lanes across. 

Also complicating life are the power outages called by the state’s largest electric provider PG&E in an effort to prevent hazardous fallen lines, which previously have been blamed for instigating fires.

The prolonged outages create significant hardships, forcing home- and business owners to consider alternative sources of energy such as costly generators or other makeshift ways to get through their day. Many have been forced to close up shop, sending employees and profits out the door.

Another concern is that insurance providers are either raising policy rates many times over or canceling coverage outright in what they consider fire-prone areas. 

For those with mortgages, homeowners insurance is mandatory, putting them in untenable situations. According to the California Department of Insurance, tens of thousands of homeowners are getting “the letter” — notice that their insurance company will not be renewing their homeowners policy.

Insurance companies say they have no choice but to raise rates because of the astronomical cost of recovering from the wildfires.

In 2017, insurance companies were paying $2 for each $1 made in homeowners insurance premiums. In 2018, the loss ratio was $1.70 paid for every $1  received in premiums. Still, a money-losing scenario.

Thus far, the California Department of Insurance has approved more than 90% of requests by insurance companies to significantly increase their rates.

Even for those who own their homes outright, they now must balance the risk of staying put, knowing they’ll get nothing in compensation if their properties are damaged. And if leaving is the answer, their property’s resale value has now been decimated. The reverberations of such decisions are widespread, affecting the livelihood of entire communities.

A last resort for more and more Californians is what is known as the state’s FAIR Plan — the Fair Access to Insurance Requirements plan — that provides high-cost fire-only coverage for those unable to secure commercial insurance. 

Created in 1968, the FAIR Plan is a pool funded by commercial insurance companies that contribute an amount in direct proportion to their market share of business.

Inherently problematic with such a plan is its limitations. Fire is only one of several hazards most homeowners consider when they purchase insurance, forcing them to buy additional coverage.

So there’s the problem in a nutshell: Without reasonably priced insurance, their homes are not only unaffordable, but also unsellable.

Pray for rain, and fast.

— Susan Lynn