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Northern California wineries, farmers vie for FAIR share of wildfire insurance coverage

California’s average fire insurance claims per year

1960-1980: $100 million

2000-2010: $600 million

2019: $4 billion

2020: $9 billion

Source: PropertyCasualty360.com

Charlie Martin may have thought his wildfire troubles were eased once he reopened his Chalk Hill Ranch after the Kincade Fire of 2019 took out non-essential buildings and scorched the land.

But two years later, he’s having to deal with serious insurance issues for his 300-acre Chalk Hill Ranch outside Healdsburg and wants his fair share. Martin has seen three policies whittle down to one that only provides $400,000 in coverage to the ranch manager’s house. Anything beyond that, including his wine and horse boarding operations valued at $3 million, was denied coverage because of the fire risk given his location.

Tubbs, Kincade, Nuns and Glass — Sonoma County is home to some of the worst wildfires in the state within the last four years. The rest of the North Bay and the state, for that matter, aren’t faring much better. More than 4 million acres burned in California in the last year alone, Cal Fire reported. Double that number, and you have the acreage scorched in just a three-year period starting in 2017. In that period ending last year, Californians endured 45,726 structures burned and 183 fatalities.

With an unprecedented drought and already about 6,500 more acres consumed by fire in the first six months, indicators show this year could be worse.

“I’m holding my breath,” Martin said. “And I’ve been 45 years with the same insurance company. I’ve canvassed every insurance company I could think of.”

When choices ran out for Martin, he turned to the California Fair Plan, which is billed as the state-sponsored plan of last resort. It also comes at a higher price. Then, there’s another catch. Existing statutes governing the FAIR plan prevents it from covering agricultural property.

California Senate Bill 11, which the Assembly joined the Senate in passing last week, seeks to throw out the exemptions, at least on buildings and inventory or stock. The bill, authored by Sen. Susan Rubio, D-Baldwin Park, has headed back to the Senate because of an amendment. If it’s fast-tracked as planned, Gov. Gavin Newsom is expected to sign it in the next few weeks.

Still, the battle isn’t over. Once implemented, it may take months for insurance companies to adapt to the legal change. But time is a luxury ranchers don’t have when they’re staring down the barrel of a firestorm threat.

Like wildfires, issue crosses Sonoma County boundaries

“The castle isn’t covered,” V Sattui Winery General Manager Tom Davis said of the family’s Castello di Amorosa in St. Helena, a prime labor of love to Dario V Sattui. “The bill doesn’t help this year, and it doesn’t go far enough. It maxes out at $3 million. For the agriculture industry that has had insurance canceled, that’s just a fraction of what a lot of people need. Some houses go over $3 million, much less a winery.”

V Sattui Winery got coverage, but it came at a steep price.

“We’re paying four times what we paid last year,” Davis said.

Castello di Amorosa was damaged during last year’s Glass Fire that roared through Solano County before invading the winery-rich Napa Valley, then up and over Hood Mountain into Sonoma County. The fire that started on Sept. 27 caused $2.9 billion in insurance losses, according to the Insurance Information Institute.

Rising wildfire coverage aligns with the costs of losses, prompting some insurance stakeholders to ponder whether the industry can sustain its viability at the current pace of the threat.

According to PropertyCasualty360.com — an insurance data research firm for brokers, the upward slant of the escalating costs of claims looks like a cliff.

Between 1960 and 1980, the aggregated average of California’s fire insurance claims cost $100 million per year. In the decade starting in 2000, the claims climbed by six times that number. In 2019, that figure rose to more than $4 billion, while last year the industry reported these claims as topping $9 billion.

An accelerating freight train out of control

“This is a true crisis out there. The FAIR plan is critical and a step in the right direction, but it doesn’t go far enough,” said John O’Neill, senior managing director in the Risk Strategies Company’s San Francisco office.

O’Neill cited one client of his brokerage firm as paying more than $120,000 a year to insure a $1.2 million building. Some wildfire deductibles equate to half the value of the coverage.

“I’ve worked in this industry for 30 years and have never seen a more difficult time,” he said. “This is not sustainable.”

His hat is off to State Farm, which is insuring in ZIP codes denied by other carriers. But how long can insurance carriers like State Farm shoulder the burden before the system breaks, O’Neill questioned.

California’s average fire insurance claims per year

1960-1980: $100 million

2000-2010: $600 million

2019: $4 billion

2020: $9 billion

Source: PropertyCasualty360.com

“I think the insurance commissioner needs to step in. We almost have to have a public-private partnership in which the state says: ‘You will cover them.’ There has to be a guarantee,” O’Neill said.

Failure is not an option

A burning landscape or threat of one may have a domino effect on cross industries such as real estate and finance. Real estate sales may either slow or stall, and property owners seeking loans may see the impact as banks will not accept them without insurance, O’Neill points out.

“It’s a political hot potato,” he said.

O’Neill suggests one answer may be a revamping of the insurance system that throws out ratings by ZIP codes.

“We’ve got to stop class underwriting by ZIP code,” he said.

In the meantime, California Insurance Commissioner Ricardo Lara remains “a supporter” of measures made such as the enactment of Senate Bill 11, his office stated in response to an inquiry by the Business Journal.

“Removing the ‘farm risk’ exclusion from the FAIR Plan statutes should allow the FAIR Plan to insure various real estate and personal property structures at wineries, ranches and farms,” Lara’s spokeswoman Candace Goodale responded. She listed examples of covered property, once SB 11 is signed, as the family home, barns for the farm animals and feed, as well as buildings that hold the farm equipment. The exemption excludes equipment and livestock. Crop insurance is a whole other animal.

“As a result of this clarification (in SB 11), the FAIR Plan will be able to offer brick-and-mortar coverage to farmers, ranchers and vintners, who were previously denied the ability to obtain commercial insurance through the FAIR Plan,” Lara wrote in a letter addressed to Assembly Insurance Committee Chairman Tom Daly, D-Anaheim.

“Given the issues farms have had with wildfires, all conversations have been with people underinsured,” said Rob Spiegel, policy advocate with the California Farm Bureau. Even with the bureau as the sponsor of SB 11, Spiegel said the state farming organization would also like to see an opening up of coverage for farmers and ranchers.

“What’s missing in this discussion is the sophistication of the new farm. We’re not talking about the mule with the plow dropping seeds,” he said.

Some insurance agents, brokers and industry insiders join agriculture advocates in recognizing the plight on the modern-day farm.

“There’s no question it’s a step in the right direction — a very temporary, stop-gap measure. It’s not a final solution,” said Tom Griffith, senior vice president with Don Ramatici Insurance in Petaluma. “There’s going to be a massive increase in costs for less coverage. But it’s designed for people who have been turned down (elsewhere).”

It all boils down to risk, which is par for the course with the insurance industry.

“If there was no risk, no one would need insurance,” Insurance Information Institute spokeswoman Janet Ruiz said from her office in Lake County, a region very familiar with wildfire danger.

The trade association representative insists she’s not particularly concerned with whether the industry can handle year after year of devastation based on the structure of the industry’s system.

“The industry has been watching all this. What we look at are: ‘What are the future risks? ‘Refilling’ is when we all look at how to mitigate these risks,” she said.

The insurance industry is a master in that strategy.

“Are we acknowledging (the issue) is accelerating? Yes. Are we working on a solution? Yes,” Ruiz said. “There’s a lot of prevention going on. We still have some of the lowest rates in the nation. And we’ve kept them artificially low for some time. We can’t change the climate, but we can change how we live in the climate.”

Susan Wood covers law, cannabis, production, energy, transportation, agriculture as well as banking and finance. For 25 years, Susan has worked for a variety of publications including the North County Times, now a part of the Union Tribune in San Diego County, along with the Tahoe Daily Tribune and Lake Tahoe News. She graduated from Fullerton College. Reach her at 530-545-8662 or susan.wood@busjrnl.com

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