Fire Insurance: How Recent Legislation Affects You

By ANTHONY MARGULEAS | Special to the Palisadian-Post

Insurance companies are no longer required to protect California homes from wildfire damages due to the expiration of the 2018 moratorium.

On Saturday, September 25, the moratorium—which previously prohibited insurers from dropping policyholders who lived in homes that were in fire-prone areas—expired, leading to 350,000 homes being uninsured. It is also projected that up to 2.4 million homes could lose protection this year.

From 2019 until now, the state disallowed insurers from removing or changing the policy for policyholders living in high-risk areas due to the danger that wildfires presented. Now, despite the persistent threat of wildfires, insurance companies can choose to change policy plans, leaving property uninsured and in danger of losing significant value.

After the Camp fire in 2018, which destroyed around 18,000 structures, the moratorium was implemented as a way of ensuring more security to homeowners in at-risk areas.

Since then, many more wildfires have sparked up and have brought more damages to California property. The Camp fire, unfortunately, was just the beginning of a long line of devastating fires impacting California homeowners and the market.

Many insurance companies have increased their rates by significant amounts, but many homeowners have coped with this through the state’s FAIR plan. The FAIR plan is an insurance association that offers assistance to homeowners and renters in high-risk areas when they are struggling to find another insurer. However, the FAIR plan does not supply as much coverage as many more expensive insurance plans, meaning that opting for this program might not be as obviously beneficial as it appears.

Last year, California extended the moratorium, which protected homeowners from losing their insurance, but this decision has been reversed. This occurred despite the fact that there are still numerous wildfires presenting risks to many different areas throughout the state.

The moratorium was intended not to be for carte blanche protection from changing insurance policies: It was intended to provide homeowners the opportunity to reconstruct their homes and properties in more fire-resistant ways. Some homeowners have taken advantage of this time to complete this task, but many have squandered the time and are now out of luck for protection from changing insurance plans.

The conclusion of this moratorium might place many homeowners at risk of losing their coverage or facing tremendous increases in their premiums, which could lead to significant financial losses if their homes do come in the way of a wildfire.

The LA Times reported “18% of the state’s households could effectively lose protection,” a significant number that appears to be the largest percentage of homes that could potentially lose protection since the moratorium began. These numbers will not be immediate and are slightly unpredictable, but it is realistic that there is the potential for great loss in fire insurance coverage throughout California.

It is difficult to project if wildfires will continue to ravage California, but given the context of global warming and climate change, it is likely that fires could continue to be a problem in the future for homeowners. The end of the moratorium might necessitate homeowners to become more conscious of their own fire-proofing endeavors and might necessitate more government intervention to protect homes.

Anthony Marguleas is the founder of Amalfi Estates, and has sold close to $2 billion in properties and was selected by the Wall Street Journal as one of the top 40 agents in the country out of one million agents. If you are thinking of buying a home or selling your own, contact Marguleas at 310-293-9280 or anthony@amalfiestates.com.