More Trouble For California Homeowners

[Cootie Brown]

I think it was the 1990's when the University of Memphis did a study on the New Madrid line. Their study indicated a major earthquake along this line was inevitable and long overdue. Insurance companies took their study seriously and stopped offering Earthquake coverage in many areas of the state.

I've got 38 years experience in the insurance business and I've been amazed that California insurance companies did not stop writing Homeowners Insurance in high risk fire areas a long time ago.

I saw in the news today they finally woke up. Many companies have announced they will no longer offer homeowners insurance in high risk fire areas. They have no other choice.They will go bankrupt if they don't stop writing homeowners insurance in these high risk fire areas.

I assume the state will have to form fire risk pools, like they do along the East Coast and Gulf States for windstorm and flood coverage. The coverage would be limited and expensive. I'm surprised this didn't happen a long time ago.

[tarheel]

That makes a lot of sense. I've wondered myself about that. I've also wondered why they write homeowners coverage on beach houses. You know a hurricance is going to come and will cause significant wind damage. If they stopped writing coverage it would certainly discourage development along the coast as banks wouldn't lend money on house without coverage.

Wonder how mortgage lenders will react to no homeowners coverage in a high risk fire area? Should have never been allowed to build there to begin with. IMO.

[agricola]

Many of those small towns in California have been there for over 150 years. Who was around to tell anybody they couldn't build a town?
There are several million people in California, and everybody can't afford to live in LA.

What will happen, more likely - and more appropriately - is that there will be more stringent building and zoning codes for new construction, and possibly an assistance program for retrofitting older buildings, to make them both more fire resistant and more survivable (safe rooms, perhaps) in case of fire.

No more cedar shake roofing in the forest-town interface zones, for one, and stricter regs about clear space.

Also - clearly - fire insurance coverage will become more costly.

[Cootie Brown]

Tarheel was correct about homes built on the coast. The government provides windstorm and flood coverage because the economic value of homeownership and tourism is greater than the losses.

I think the government will provide fire insurance pools, similar to flood coverage, in these high risk fire areas for similar reasons. The coverage will be limited and expensive though. But this option will take time before it becomes a reality.

The obvious risk for living in these areas will drive many people away. It's not just your home that is at risk, so is your life. Being buried alive is not the way anyone wants to die.

Other areas of the country are heavily forested, but they don't have these kinds of fires, or as often as California does. My daughter lived in San Diego for a couple of years and there was always a fire burning somewhere in the area, but they tended to be small and manageable fires.

[Ivy]

Well, we have a small place in a fire-vulnerable mountain / forest area. Thankfully, the forest service in our area (Santa Fe National Forest) uses best practices as far as I can tell, to keep the fire risk down. But there is usually a fire burning somewhere. They do prescribed burns when necessary. They totally closed down public access to the forest this past summer during the severe drought. We did have difficulty finding home owner's insurance in the area. Currently in our neighborhood's favor is that we have a volunteer fire station on-site, a water source, and several experienced fire fighters / EMS trained people in our neighborhood. Our cabin is built from fire-resistant materials. We also recently had a fire fighter move in just across the road from us. He has already taken care of some dead trees / brush that needed to be taken down in our cul de sac. But you always have to be aware of the fire risk.....lightening, or a careless smoker , hunter, or camper.

I feel really bad for the people in CA.

[tarheel]

Tarheel was correct about homes built on the coast. The government provides windstorm and flood coverage because the economic value of homeownership and tourism is greater than the losses.

I think the government will provide fire insurance pools, similar to flood coverage, in these high risk fire areas for similar reasons. The coverage will be limited and expensive though. But this option will take time before it becomes a reality.

The obvious risk for living in these areas will drive many people away. It's not just your home that is at risk, so is your life. Being buried alive is not the way anyone wants to die.

Other areas of the country are heavily forested, but they don't have these kinds of fires, or as often as California does. My daughter lived in San Diego for a couple of years and there was always a fire burning somewhere in the area, but they tended to be small and manageable fires.

Cootie, you are probably right about the government pools. You are the one with the expertise in this area. However, I must say I would resent my tax dollars subsidizing those who want to live on the beach. Beachfront property here on the North Carolina coast goes for $1,000,000 and up. That is an indication of the socio/economic strada living there. We could cut off all this damage on the coast from hurricanes by simply preventing the property from being insured.

[Cootie Brown]

Tarheel, these type of policies generally provide minimal coverage. The are almost always Actual Cash Value policies. rather than replacement cost, and the deductible is often a percentage of the loss and could range from 5% to 25%. Contents coverage is also often an optional coverage,

A total loss of building and contents, with one of these policies, would leave the homeowner with substantial out of pocket expenses. The policy is designed for that result because they are providing "last resort" coverage because standard policies from private companies is not available.

People that say they will self insure, generally means they aren't going to buy an insurance policy. Self insurance means the property owner has the financial assets to rebuild their destroyed property. If they do not have such assets then self insurance means they are just rolling the dice in the hope they don't have a loss. If they do suffer a major loss then they will likely end up in bankruptcy.

[tarheel]

Tarheel, these type of policies generally provide minimal coverage. The are almost always Actual Cash Value policies. rather than replacement cost, and the deductible is often a percentage of the loss and could range from 5% to 25%. Contents coverage is also often an optional coverage,

A total loss of building and contents, with one of these policies, would leave the homeowner with substantial out of pocket expenses. The policy is designed for that result because they are providing "last resort" coverage because standard policies from private companies is not available.

People that say they will self insure, generally means they aren't going to buy an insurance policy. Self insurance means the property owner has the financial assets to rebuild their destroyed property. If they do not have such assets then self insurance means they are just rolling the dice in the hope they don't have a loss. If they do suffer a major loss then they will likely end up in bankruptcy.

I am very familiar with the concept of self insurance as it relates to health insurance. We did that in the plants I managed. Was not aware of it in this context especially as it relates to pool policies. Thanks for the info.

[ena]

Both my paternal grand parents are buried in Paradise which lost many homes to Camp Fire. The fire was so named because it started near Camp Creek Road. Paradise is wooded with some grass land which means scrub and weeds. We are in a seven year drought. There was a prevailing wind when the fire started. What burned was not so much trees but bush and homes. My cousin lost his home and his church. He and his wife and children survived. He is in his late seventies. I found him on the web. Controlled burns would be nice but the air quality would suffer badly. Farmers used to burn off their field for weed control. This is no longer done. This is because California has a large central valley surrounded by mountains. It runs nearly the length of the state. To the east of the state is the Sierras. These are quite high. There nearest pass is Donner Pass. It is named after the Donner Party who got hit by a snow storm. This storm hit them with 17 feet of snow. You can go over it. It is plowed but you often have to put on chains or studded snow tires. You can easily lose steering with rear wheel drive. The problem is that the front of the car is heavier going up hill. You can literally have the car swing around and be going downhill because of this. I have had this happen. I live in San Jose in the coast range. Silicon Valley is literally a valley. We saw smog from the fire. The main hazard in California is earth quakes not forest fires. You are offered earth quake insurance. I do not get it because premiums are so high. I have been though many earth quakes. The worst was in 1989. I was at work. The ground started shaking and kept shaking. I went out in the parking lot. The power had gone out. I soon realized that the street lights would be out. We have lots of traffic and it can jam. I was two street lights from the freeways. I turned my computer off so it would not cycle when the power came on and drove to the freeways ahead of the pack. I got home and realized that we would need batteries. I went to the store and bought them. We were without power for that night. The damage was spotty for many miles.

[ena]

That makes a lot of sense. I've wondered myself about that. I've also wondered why they write homeowners coverage on beach houses. You know a hurricance is going to come and will cause significant wind damage. If they stopped writing coverage it would certainly discourage development along the coast as banks wouldn't lend money on house without coverage.

Wonder how mortgage lenders will react to no homeowners coverage in a high risk fire area? Should have never been allowed to build there to begin with. IMO.

I have been in the lower wards in New Orleans on a trolley with my wife before Katrina. Most of the people getting off and on were black. They were most of the help for services in New Orleans. This area is subject to periodic flooding. Old town is on higher ground. New Orleans is jammed between the Mississippi and Lake Pontchartrain. The airport is in Kenner nearby. Rebuilding the lower ward means you will have to pay for future flooding. There is ample farmland to the north. The problem is cheap transportation there. It is a solvable problem but costs money to save money in the future. I feel much the same way about barrier islands. I don't consider Paradise a high fire danger area. I have been there many times since I was 3 years old. This is the first major fire in 67 years. You can build houses with no exposed wood. No matter where you live there are risks. Insurance calculates the risk to set the premium. The higher the risk the higher the premium. My main concern is liabilities.