Personal Risk Matters

Understanding Wildfire Losses and California Insurance Legislation

Posted by David Abbene Tuesday, February 05, 2019

After two destructive years of wildfire losses, the state of California has passed legislation to support homeowners who have been impacted by the wildfires with their recovery and rebuilding efforts. You may have heard about the new California wildfire insurance legislation in news reports or on social media.

Most notable of the legislative changes is California Senate Bill (SB) 894. If you are a California property owner navigating the even more complex insurance marketplace, understanding the impact of this bill and other legislation on your existing homeowners policy and future coverage options is important.

What Is SB 894?

The intent of SB 894 is to ease the financial burden of homeowners who experience a total loss of their home in a declared disaster occurring after September 21, 2018.

SB 894 requires insurers to provide homeowners who suffer a total loss of their home with certain extended policy provisions. These provisions require insurers to offer to renew the home policy for the next two annual renewals (over the previous one annual renewal), or no less than 24 months from the date of loss.  It also extends additional living expense coverage from two years to three years.

For homes that were underinsured at the time of the loss, the new legislation allows homeowners the option to combine their other structures coverage limit – typically used to cover buildings or structures that are separate from the home, like a detached garage or guest cottage – with their primary dwelling coverage to help offset some of the loss. Homeowners qualify for this option only if: (a) the home is considered a total loss, (b) the total loss occurs as part of a declared disaster, and (c) their primary dwelling is underinsured.

What Other Legislation Was Enacted to Assist Homeowners Impacted by Wildfires?

Additional legislation was enacted in conjunction with SB 894 in September. Assembly Bill (AB) 1772 increases the timeframe a policyholder has to rebuild their home after a total loss from two to three years without a reduction in replacement cost coverage on their policy. AB 1800 clarifies existing law to protect homeowners who choose not to rebuild at their home’s original location, prohibiting insurers from limiting coverage on the basis that the policyholder chooses to rebuild or purchase a home already built at a different location. Other bills enacted in 2018 addressed a variety of insurance-related topics, including mandating electronic delivery of policy documents after a declared disaster, establishing an online insurance locator tool, and changing certain statute of limitation periods. We will discuss the specific details of these new laws in our next blog.

How Have These Bills Impacted the Insurance Market?

Every homeowner’s situation is different, and no two losses are alike, so how the legislation affects each individual’s policy and claims settlement may vary. Marsh PCS is currently monitoring the current claims scenario to see how our core insurers are implementing changes in their claims settlement practices as a result of this new legislation.

Some insurers have announced additional rate increases in order to offset higher losses as a result of the wildfires in 2017 and 2018. Other insurers are choosing to update their underwriting guidelines and write fewer new policies in high-risk areas.  This translates into less coverage availability for homeowners seeking alternative insurance for properties in high-risk areas. Some insurers are also exercising their option to non-renew or cancel policies on homes not exempted by these new laws.

Policyholder Considerations

During this challenging time of change in the insurance marketplace, there are some steps homeowners can take to avoid prompting a mid-term policy cancellation or non-renewal:

  • Avoid a policy lapse by making payments on time.
  • Ensure that both Marsh PCS and your insurer have your current billing address and contact information on file.
  • Discuss any home renovation projects with your insurance advisor early in your planning stage and do not begin construction until you have successfully secured insurance for the full period of construction. Home renovations can change the risk profile of a property which may trigger a mid-term cancellation or non-renewal, so it’s important to talk to your insurance advisor about any project plans.
  • Speak to your insurance advisor prior to turning your primary home into a secondary residence. A change in occupancy may be considered a change in risk profile, which can trigger a mid-term cancellation or non-renewal.

How Can Marsh PCS Help?

For clients facing non-renewal or cancellation of their insurance coverage, Marsh PCS may be able to assist. We have access to a wide variety of excess and surplus (E&S) insurers if coverage is unavailable in the standard insurance market.

Many states allow E&S insurers, also referred to as non-admitted insurers, to transact business in their state if there is a special need that cannot or will not be met by standard (i.e., admitted) insurers. It’s important to note that E&S coverage can be costly and it is not regulated by the state. However, it does provide more insurance options for high-risk properties.

If you are contemplating a major renovation, have concerns about obtaining insurance coverage in California, or have received a non-renewal or cancellation notice, a Marsh PCS personal risk advisor is available to help you navigate the complexities of the marketplace.

California Department of Insurance 
Insurance Journal 
California Legislative Information

David Abbene