Q&A: Fire Risk Insurance
We sat down with John O’Neill from Risk Strategies about this topic. Excerpts from our interview:
What are some examples of catastrophic insurance coverage?
Wondering what are some examples of catastrophic insurance coverage? Insurance companies do two things: They look to cull risks that they perceive to be higher threats of loss for wildfire, or they look to increase premiums. And that's exactly what is seen in the industry right now. And it's not just for wildfires. It's climate change in general. While we see catastrophic fires in the West, we also see severe weather across the rest of the United States. For example, the hurricanes now have gone through not only our alphabet, but the Greek alphabet in terms of naming of these, more than we've ever had on record. We are now experiencing tornadoes in the Southeastern part of the United States. So nationally, this is a problem and there's really just no place to hide and there's no opportunity to get relief or respite.
What are some of the things that people could do if they do not get their standard fire insurance renewed?
You might be wondering what to do in case your standard fire insurance is not renewed. The options are as follows: one is you can continue to shop for other insurance companies. And if you're not successful in finding an admitted company, there are other options such as Lloyd's of London, which is basically a syndicate or a number of syndicates that could take a portion of that risk. And they do that at a much higher price point. So expect that you'll be paying a lot more than you did the prior year. There are other non-admitted or non-regulated insurance companies as well, that would consider writing that risk much like a standard homeowner’s policy, but would again, charge considerably more. And the last resort is the California FAIR plan. And the California FAIR plan is an association that's based out of Los Angeles. It really consists of all of the insurance companies that participate and write insurance in the state of California. And each of those insurance companies absorb their percentage of the loss of the FAIR plan based on their writings in the state of California. Now the FAIR plan is a backstop and it's required to really insure anyone who applies for coverage. The caveats are, though, they're limited to not more than $3 million in replacement costs on any single home. And that might mean that the contents or what have you, you can't go more than $3 million, so you're very limited. And secondly, with the FAIR plan is that you are not going to get a standard policy. It's only fire, smoke, vandalism, and malicious mischief. So if you have a water loss because of pipe breaks, that FAIR plan policy is not going to respond to that. Those are things that you would have to consider buying or purchasing an additional policy, known as a wrap policy, to give you those extra added perils and the coverage for them.
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