Will the wildfires create an insurance desert in California North Coast?
A record-breaking heat wave, an extended drought and a post-vaccine summer filled with barbecues and fireworks mean one thing: wildfires are back, and they’re expected to be worse than ever.
It’s clear this problem isn’t going away. As fire crews fight severe heat and extreme dryness, homeowners and businesses find themselves losing insurance amid an increasingly untenable risk environment. However, an insurance desert in one of the country’s largest markets need not be a foregone conclusion.
Managing risk is possible even in high-risk wildfire areas. With wildfires increasing in severity and duration each year, companies that can find ways to manage risk and insure private and commercial properties will have a unique opportunity to access a market in desperate need of insurance.
In Napa Valley, for example, fires threaten not only lives and property but the $5 billion wine industry, as well as $2.2 billion in tourist spending.
For the wine industry, fires are an existential threat, especially for vineyards that lose their insurance. Last year, the wine industry in Napa lost an estimated $2 billion as vineyards and inventory burned, and smoke devastated the delicate conditions required to produce a quality vintage.
This year, one in four members of the Sonoma County Farm Bureau have faced non-renewal of insurance, and those who can access insurance have seen costs triple and quadruple for a fraction of the coverage.
The California FAIR Plan, a state-sponsored insurance pool designed to help spread risk and make insurance accessible for farmers and wineries, was recently signed into law by Gov. Gavin Newsom. While the new bill is a welcome step in the right direction, there are still concerns among some in the wine sector that it is still not enough.
"We have some big, big issues and threats to the overall resiliency of the Napa Valley wine business, and we all need to come together to find those solutions," says Michelle Novi, industry relations and regulatory affairs director for Napa Valley Vintners, in an interview with the Napa Valley Register.
Wineries are not the only ones facing a fire season without insurance. From 2015 to 2019, insurers dropped property coverage for over 143,000 customers.
Though California Insurance Commissioner Ricardo Lara issued a moratorium on non-renewing or cancelling residential property policies for homes near or in areas that burned in the 2020 wildfires, that restriction is set to expire in November, the middle of this year’s fire season. Over 2 million policyholders could lose their insurance when they are at the highest risk of losing their homes.
The risk of fire has escalated dramatically in recent years, and trying to cobble together sufficient coverage at an affordable price has become a nearly impossible task.
On the other hand, with a more manageable risk of fires, California’s wine country could be extremely attractive to insurers, both because of its high property value and because it could serve as a model for risk mitigation amid a changing climate.
Fires have become a whole-of-society problem––and mitigating fire damage requires comprehensive solutions. In Napa, residents have proactively taken steps to protect homes and properties, clearing underbrush, setting up staging areas for first responders and hiring private fire services to reach the many remote areas throughout the valley.
As a communications infrastructure company based in Napa County, we’re applying our expertise and experience to directly address the fires that threaten our community. To truly make a dent in fire prevention and mitigation, early detection, better communication and faster response time are critical.
We’re working with Napa County to deploy state-of-the-art fire detection technology capable of detecting fires within minutes. The fire detection system combined with telecom infrastructure improves communication signals throughout the valley and mitigates communication outages during fires.
The reality is that for many insurance companies, policyholders who take every action and measure available to protect their properties from fire are still too high-risk. That’s because increasingly destructive wildfires are not a problem anyone can solve on their own––but that doesn’t mean fires are not a solvable problem. To address this crisis, we must invest in solutions that will protect entire communities over the long term.
As natural disasters worsen, the insurance industry must take proactive steps in support of comprehensive solutions.
Perpetually falling coverage and rising costs is unsustainable, especially if the risk will only continue to grow exponentially. Using infrastructure that’s easy to construct and maintain, finding ways to make the best technology on the market affordable and focusing on long-term approaches over short-term risk management could increase access to lucrative markets.
Insurers are not helpless against the threat of wildfires. Acting now could save countless lives and properties, protect local economies and position insurers to lead the industry to a more sustainable model amid a climate transition.