California North Coast wineries, homeowners seek relief from soaring insurance premiums

Clay Shannon had budgeted $45,000 this year for commercial property insurance premiums on Shannon Ridge winery in Lake County as well as bulk-wine storage facilities there and in surrounding Mendocino and Sonoma counties.

So he was shocked when he opened the renewal notice this spring and saw the premium would be over $110,000. He saw a similar jump on policy renewals for homes on the 2,000-acre ranch on the north side of Clear Lake.

“Of course, we’re doubling the price of our wine, right?” Shannon asked with a laugh. “That’s how it works, right: We should just pass it off.”

The jump premiums for the commercial property policy sourced through DLL Insurance Agency of Fresno came because of increased risk of wildfire.

Lake County was hit by massive blazes in 2015, 2017 and 2018. As much as growers and vintners may want to pass off higher costs to trade customers or consumers, that’s been challenging for wine businesses that are coming off two years of large crops and slowing growth in wine sales, even before the coronavirus-influenced recession.

“There will be quite a bit of unsold fruit this year,” said Shannon, whose Shannon Ranches tends over 4,000 acres of wine grape vines in Lake and Napa counties in the North Coast and in Colusa County in the Sacramento Valley. “With COVID, people are apprehensive about spending money. I’ve seen wineries that bought grapes before that are now saying they will buy bulk wine this year, so they can defer the cash. The problem is, not all growers can make bulk wine, as it creates a huge extra expense for the grower.”

Rising insurance premiums on renewal and increasing nonrenewal of policies is becoming quite a problem for California businesses and homeowners in areas that have been hit by massive wildfires or at high risk of that.

“It’s getting crazy,” said Jared Hull, an agent in Farmers Insurance’s Ukiah office. “There’s pretty much only one option when you get into these rural areas, and that’s the California Fair Plan. For commercial properties and homeowners, almost everyone is on the same page.”

The California Fair Plan was set up in 1968 after the Los Angeles riots and wildfires in the region as the state’s insurer of last resort, offering limited coverage when other insurers wouldn’t write policies at all. It’s an association is a syndicated fire insurance pool made up of all the insurers that are licensed to conduct property/casualty business in the state.

Policies cover up to $3 million for homes, but to get the common features of homeowner coverage requires supplementary policies. Commercial Fair Plan policies are for named perils.

Problem is, with higher risk comes higher premiums.

Hull and other local agents have seen quotes for rural North Coast homes that would have premiums of $4,000–$6,000 for homes with 2,000–3,000 square feet.

And go-to carriers for surplus and excess coverage, when others won’t offer policies — Nationwide E&S/Specialty (formerly, Scottsdale) and Lloyd’s of London — are starting to take passes on properties in higher-risk California areas, according to agents.

Debra Costa, head of Heffernan Insurance Brokerage’s wine practice, has had some winery clients have to find separate coverage for certain properties in their portfolio that are in high-risk areas. Where coverage cost of $1 per $100 of property value was once deemed expensive, some quotes are for as much as $3.

“We really need a remedy,” Costa said. “There needs to be a backstock for carriers to protect their financials. We need more capacity.”

According to the insurance industry, the spike in California property insurance premiums and drop in the number of carriers offering coverage has been caused by the big jump in losses from fires since 2015 and regulatory limits that don’t allow pricing to match the risk. Prop. 103, approved by voters in 1988, required property and casualty insurers to get approval from the Department of Insurance before instituting rate increases on homeowner policies.

More than $25 billion in wildfire losses over a three-year period, including the 2017 North Bay fires and the 2018 Camp Fire that destroyed the city of Paradise, wiped out insurance company profitability to a greater degree than the previous major wildfire peril in the state, the 1991 Oakland Hills Fire, according to Mark Sektnan, vice president of the American Property Casualty Insurance Association.

And the Kincade Fire that consumed a few wineries and a few hundred homes as it burned through northeastern Sonoma County had losses estimated at another $10 billion.

“While those losses big, the DOI requires insurers to use a 20-year average for their fire models,” Sektnan said. “People are asking if this is the new normal, but insurance rates are based on past loss, basically looking in the rear-view mirror.”

One California insurer had a loss ratio of $4.72 paid in claims per $1 received in premiums on those policies, and the average loss ratio for the 2017 North Bay firestorm was $1.80, according to Sektnan.

“Part of it is to reflect the risk,” he said about the premium increases. “You do not want people living in a town 400 mile away subsidizing the costs of people living in a fire-risk area.”

Sacramento is pursuing legislative solutions to the pricing and availability of residential property policies in higher-risk area, but similar action hasn’t yet emerged for commercial policies.

A potential fix moving through the Legislature for homeowner policies is Senate Bill 2167.

One of its closely watched amendments is a system for encouraging insurers to write policies in high-fire-risk areas of the state. It would allow insurers to create an “insurance market action plan,” or IMAP, for counties with a higher proportion of Fair Plan policies — ranging from 0.15% for large counties and 1% for small counties.

According to the Los Angeles Times, Sonoma and Napa are among the counties that are being considered for addition the “eligible counties” list, which includes 21 counties by the Department of Insurance’s reckoning and 28 counties per the insurance industry’s view.

It passed the Assembly on Aug. 5 and is up for review by the Senate Appropriations Committee. It would require passage of Senate Bill 292 then six more months to IMAPs could be sold by the industry, according to the Times.

Also in the works is AB 3012 by Assemblymember Jim Woods, D-Santa Rosa. Among its major features are allowing residents to return to areas such as Paradise that have damaged water infrastructure, extending coverage for living expenses and curtailing requirements for itemized claims and calling for a clearinghouse to be established to move draw down on the number of Fair Plan policies, according to spokeswoman Cathy Mudge.

Jeff Quackenbush (, 707-521-4256) covers wine, construction and real estate.

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