Wildfire Outbreaks Spook Insurance Companies
Pastor Dale Morgan
*
May 20, 8:30 PM EDT
*Wildfire Outbreaks Spook Insurance Companies*
By GILLIAN FLACCUS
Associated Press Writer
SANTA ANA, Calif. (AP) -- Spooked by devastating wildfire seasons, the
nation's top insurers are inspecting homes in high-risk areas throughout
the West and threatening to cancel coverage if owners don't clear brush
or take other precautions.
The inspections have angered homeowners and watchdog groups that accuse
the companies of trying to cut risk at the expense of customers, even
while industry profits soar. The complaints echo concerns raised after
Hurricane Katrina, when many insurance companies increased rates or
dropped policies along the Gulf Coast.
"It certainly isn't fair for these insurers to be dumping these
last-minute requirements on homeowners," said Carmen Balber of The
Foundation for Taxpayer & Consumer Rights.
"It does make sense to require homeowners to take reasonable
precautions, but some of the excessive demands that we've heard from
homeowners are over the top," she said.
The requirements can range from clearing brush to cutting down trees or
even installing a fireproof roof.
Insurers and industry groups counter that making people take
responsibility for living in the highest-risk fire areas makes good
business sense.
"Insurers are in the business of measuring and attempting to put a price
on risk," said Candysse Miller, executive director of the nonprofit
Insurance Information Network of California. "We are encroaching further
and further into hillsides and areas where we should not build, and
insurers have to take a look at that."
Catastrophic fires, including wildfires, caused $6.4 billion in insured
losses between 1986 and 2005, with more than $2 billion of that amount
stemming from massive firestorms in 2003 in Southern California, said
Loretta Worters, a spokeswoman for the Insurance Information Institute.
In California alone, more than 6 million homes stand in wildfire red
zones, and the number of homes built in remote "wildland communities" is
expected to increase by 20 percent during the next decade.
Yet a survey conducted last year by Allstate Corp. in California's most
high-risk communities found that more than three-quarters of homeowners
thought it was somewhat or very unlikely that their homes would burn.
Denise Taylor, a San Diego high school teacher, lost her home to the
Cedar Fire in 2003. The wildfire east of San Diego killed 15 people,
scorched 427 square miles and destroyed nearly 3,000 buildings,
including some 300 homes.
Taylor was stunned when her insurer, USAA Insurance Cos., doubled the
annual premium for her rebuilt residence, which was 300 square feet
larger, to nearly $3,000.
She said the company insisted on insuring the home for $1 million even
though she only paid $600,000 to rebuild with fire-safe stucco siding, a
fire-resistant deck and roof, brush clearance, no eaves and a stucco
wall separating her property from a regional park.
"When you look at the profit margins of insurance companies, it's not
like they're starving. Sometimes they're going to have to pay a lot of
money and that's life," Taylor said.
USAA spokesman Roger Wildermuth said his company does brush inspections
on homes in high-risk areas but has not hiked premiums because of the
Cedar Fire.
State Farm, Allstate and USAA all said they give homeowners an
opportunity to fix problems but added that in the most severe cases,
customers could be denied coverage if they don't comply.
"What do you do if that property's not yours? If they're demanding a
200-foot clearance, what if you own only 150 feet beyond your house?"
said Karen Reimus, a San Diego attorney whose home burned in 2003.
With claims from Hurricane Katrina largely resolved, State Farm Fire &
Casualty Co. saw profits climb 65 percent last year to $5.3 billion,
while Allstate raked in profits of $5 billion.
The companies are the nation's first- and second-largest
property-casualty insurers, respectively.
An industry analyst said the inspections fit into the larger shift by
insurers away from catastrophe-prone areas after the devastating 2004
and 2005 hurricane seasons.
"The hurricane seasons were huge, huge wake-up calls in terms of
insurers realizing that they did not understand the risks that they had
put on their books," said Donald Light, a senior analyst with
Boston-based Celent. "Many insurers have been doing a lot of things to
readjust that balance, and wildfires are a part of that picture."
A number of companies, including Allstate and State Farm, canceled or
limited homeowners policies or raised rates along the southeastern coast
after the 2004 and 2005 storm seasons.
Allstate also recently announced it would no longer underwrite new
homeowner policies in California, citing risks from wildfires and
earthquakes. The company is also seeking a 12 percent rate hike for its
900,000 existing customers.
In the past few months, Allstate has started inspecting homes in
high-risk fire areas in Washington, Oregon, Idaho and Alaska before
issuing new policies. The company also has been checking new applicants
in danger zones in Colorado, Nevada, New Mexico and Utah since last year
and homes in Arizona since 2004.
Next year, the company will begin inspecting Colorado homes due for
policy renewals, company spokeswoman Megan Brunet said.
State Farm has inspected thousands of homes up for new and renewed
policies in high-risk areas in those same states, as well as in Wyoming
and Montana, spokesman Jeff McCollum said.
Both companies have been inspecting homes for years in California, one
of the worst wildfire trouble spots, and pointed out that the number of
homes inspected makes up just a fraction of their overall customer base.
Allstate doesn't track how many new applicants were rejected because of
inspections but said it has received no complaints.
State Farm said no policies were dropped as a result of its inspections.
Most property owners were happy to make improvements within the 18- to
20-month timeframe, McCollum said.
"There's never been anybody who didn't want to go along with it. Of
course the property is important, but with wildfire you're putting
firefighters at risk and your neighbors at risk," he said. "I think the
people who live in these areas were pretty highly motivated to do this."