Fires become routine. How can businesses afford insurance?
As Napa and Sonoma counties, and so much of California, continues to burn, there could be another issue for business owners - a larger insurance bill.
Even before the devastating Glass Fire that erupted near St. Helena in the wee hours of Sept. 27, commercial property owners in California, particularly wineries, were already getting notices of premium increases of 400% to 500% . Some policies were being canceled.
“Obviously, with the change in weather patterns and with California becoming a wildfire state, as it is perceived by the insurance industry, many insurers are pulling back. There is less capacity in the market place to write insurance in high wildfire areas,” said Debra Costa, senior vice president with Heffernan Insurance Brokers in Petaluma.
And now with the area being devastated again, “I think there will be more restrictions in the market place based on the amount of paid losses. There will be coverage restrictions.”
Today it’s challenging for most people to change a residential or commercial insurance policy in any of the fire areas because of moratoriums put in place by the insurance industry. It means no new policies can be written and existing ones cannot be changed.
Moratoriums are set by individual insurers, and are the norm during most catastrophic incidents. Sometimes they cover entire counties, sometimes it’s by ZIP code. Usually they are in effect until the fire is 100% contained.
“This time of year is really bad. Oct. 1 is the start of a fiscal quarter so lot of businesses start their insurance on fiscal quarters,” explained Jeff Okrepkie, a commercial insurance producer with George Petersen Insurance Agency in Santa Rosa.
For people without a new signed policy, they will likely be left with the parameters of the existing policy. Each company can devise its own policy when it comes to insureds who are caught in this state of limbo. This is why during a devastating fire calling one’s insurance agent should be on the top of the to-do list.
Legally, insurance companies must give clients written notice within 60 days if rates are going up significantly or if the policy will not be renewed. This year some companies are giving clients 90 days’ notice.
It’s not unusual for insurers to send letters to their entire portfolio of clients, not just to those who have filed claims or who are doing business in wildfire areas. That’s because with the rising cost of paying claims, revenues are declining and the way to replenish the pot is to raise rates for all policyholders. They also have to satisfy company investors seeking a good return.
Companies could also pull out of markets that are high risk, which, after several years of devastating wildfires, much of the state is now deemed.
“Any commercial property in California is likely to see an increase in rates based on the overall portfolio experience of the insurer,” Costa said.
In the fires which continue to burn in Napa and Sonoma counties, wineries have been damaged or destroyed, adding to the hit the industry has taken through the area’s wildfires. The very nature of where wineries are located put them at risk.
“In the more rural areas it is through the roof. In general wineries are on the hillside or the valley floor backed up to a hill. They are more prone to wildfire risk,” Okrepkie said. “We are seeing an inability to get coverage a lot of time or at least affordable coverage. It’s sad because the smaller, traditionally called mom and pop wineries, are seeing rates go from $19,000 for a commercial package to the next best thing they can get costs $40,000 to $50,000. I’ve seen it go from $27,000 to $80,000.”
It was two years ago this November that the Camp Fire wiped out the town of Paradise in Butte County and killed more than 80 people.
Just last October the Kincade Fire in northern Sonoma County destroyed 374 structures, and damaged 60 others.
The fires in the state this year have burned at least 4 million acres, destroyed thousands of structures and resulted in nearly three dozen fatalities.
In 2017, insurance companies paid out $11.8 billion from wildfire claims; in 2018 the total was $12.4 billion. Detailed data from the 2019 fires was not collected by the state Department of Insurance. These figures are for residential and business customers. Actual losses could be higher based on people being underinsured or uninsured. The losses are continuing to mount in 2020.
“Right now your insurance agent is going to be a crucial aspect of your recovery team,” Okrepkie said of people who suffering immediate losses. He knows this firsthand, not just as a businessperson.