Nearly a year after the Woolsey Fire and Hill Fire scorched Ventura County and parts of the Northwest Valley, businessowners in high-risk ZIP codes are facing a residual problem: insurance – or, more accurately, a lack thereof. Catastrophic damage from the fires led to astronomical losses for insurance carriers, prompting them to either hike fire policy premiums in those zones to an unaffordable degree or pull out of the region altogether in anticipation of future disasters. This has created a crisis for affected property owners. “This is by far the most significant hardening of the market that I’ve seen for fire insurance ever,” Ken Blaich, co-owner and senior vice president of commercial lines at Leavitt Insurance Services of Los Angeles in Woodland Hills, told the Business Journal. “Commercial insurance carriers have remapped the areas and are seriously looking at not writing coverage in firestorm areas. … It’s a significant problem.” Hardening market National carrier American Insurance Group Inc., for example, has placed a moratorium on all of L.A. County after suffering a 900 percent loss ratio immediately after the fires, according to Tim Gaspar, chief executive of brokerage Gaspar Insurance Services in Woodland Hills. Other carriers opted to not renew specific client policies in Calabasas, Agoura Hills, West Hills, Bell Canyon and Ventura. Gaspar said that, broadly, claims payouts were so high that the few providers still offering coverage in those zones increased their premiums 200 to 300 percent — even for properties in largely unaffected areas such as Encino and Tarzana south of Ventura Boulevard — simply to recoup their lost capital. Gaspar said the alternative for many of these insurers would be bankruptcy. He pointed to the case of Merced Property and Casualty, a small carrier formerly in Atwater forced into insolvency by the overwhelming volume of claims filed following the Camp Fire in Butte County. Court documents state the company faced $64 million in liabilities but only held $23 million in assets. “They’re running based on the metrics. If they don’t take drastic action to reduce exposures, it really will put them under,” Gaspar said. But what are property owners to do when the market is unable or unwilling to serve their needs? Folks in dire situations can find coverage via the California Fair Access to Insurance Requirements Plan — or FAIR, founded in 1968. This is designed to be a “last resort” option for those who’ve been denied by private insurers and covers a maximum of $1.5 million for a building and its contents. In many cases, that wouldn’t be enough for a business to fully rebuild its brick-and-mortar structures or to account for revenue lost during the restoration process. Additionally, unlike commercial plans, FAIR coverage doesn’t include liability insurance. To get comprehensive coverage, property owners would need to pair FAIR with a second policy from a private insurer that doesn’t include fire protection. “It’s not a good option,” Gaspar said. “But it’s better than nothing.” “If (FAIR) didn’t exist, people wouldn’t get coverage, period,” said Blaich. The coverage shortage is such that Blaich advises policyholders to accept renewal offers at almost any cost. Gaspar agreed. “Even if the price doubles, it’s probably best that they take it. I hate to say that, but there are just so few options,” Gaspar said. Ripple effects The hardening of the market has started to reverberate into other parts of the insurance industry. “Reinsurance rates have skyrocketed this year,” said Gaspar. Reinsurance is coverage purchased by insurance companies. It helps them mitigate risk by passing a portion of their liability to another insurance company. Like primary carriers, reinsurers took huge losses after the fires last November. To make up those losses, they increased their rates for “ceding” insurance firms. Gaspar said this has created a domino effect of premium markups for all sorts of consumer insurance policies, even those unrelated to fire. “One thing affects another. The industry is all tied together,” said Gaspar. Primary carriers and individual agents, too, are scrambling to take care of their clients. “If (consumer) insurance doubles like it is this year, they’re going to be very unhappy with that. There’s certainly a much higher chance you’ll lose the client,” Gaspar said. Blaich said he has begun recommending certain clients talk to other agents at different firms — something bad for business, but he feels it’s in the best interest of his clients. Finding decent coverage in a market like this, he said, requires not just a well-seasoned agent with strong relationships with carriers, but one intimately familiar with the neighborhood in question. “It’s really important for customers to work with agents who are in that particular area who understand that area and might have a different type of relationship with a carrier or wholesaler to get something done,” he said. Another impact is the toll taken on real estate prices and home sales in high-risk neighborhoods. Gaspar told of a client who offered $3 million to buy a home in Bel Air. The property owner accepted his offer, but he was forced to withdraw it because there wasn’t a single carrier willing to give him a homeowners insurance policy at that address. “I saw the same happen in Westlake Village a few times,” Gaspar said. Additionally, people with mortgages are required to have homeowners insurance, creating an urgent dilemma for those whose carriers decide not to renew. Blaich countered that the FAIR Plan exists to help in cases like these where not having homeowners insurance is the only thing standing in the way of closing escrow. Reevaluating coverage Despite the dark clouds hanging over the industry right now, there is a silver lining according to Gaspar: policy holders reevaluating their coverage is good for them and for the insurance industry. “There were a lot of folks in the wildfires who unfortunately were very underinsured,” he explained. “That’s a recurring theme we’re hearing where homes cannot be rebuilt, or folks are running out of coverage for their rental homes. They just didn’t have enough insurance — they probably had the same policy for 15 years. But until there’s an event like a wildfire or some serious claim, you don’t know that the policy you have is not a very good one.” Gaspar said that barring more catastrophic fires in the coming months, the market will eventually stabilize, as was the case when earthquake insurance rates spiked following the Northridge earthquake in 1994. “The situation creates opportunities for insurance companies that are OK with risk,” he said. “If they want to go after homes in Bell Canyon, they would be received with open arms and get tons of policies.”
