Insurance coverage

Forest Fire Insurance Coverage Series, Part 6: Ensuring availability of insurance and national regulations

Due to the potential exposure associated with wildfires, many insurers have attempted to exit the property coverage market in various states. In this article in the blog’s wildfire insurance coverage series, we discuss the challenges businesses and individuals face in obtaining wildfire insurance coverage, and the regulatory regime that aims to help them obtain adequate coverage.

Given the growing exposures associated with climate change, many insurers have sought to exit the wildfire coverage market or raise rates to a level where they are effectively unavailable. States opposed it. As one commentator put it, “[e]Even when insurers have tried to withdraw policies or raise rates to reduce climate-related liabilities, state regulators have forced them to provide affordable coverage anyway, simply subsidizing the cost of underwriting such a risk policy or, in some cases, offering it themselves. At least 30 states have developed regulations, called Fair Access to Insurance Requirements (FAIR), to ensure the continued availability of insurance. The FAIR plan provides a channel to insurance for homeowners who would be stranded without any reasonable access to insurance without state intervention.

For example, the California legislature created the California version of the FAIR plan in 1968 to provide homeowners in high-risk areas with access to basic homeowners insurance.[1] The basic policy is limited to damage caused to the accommodation and its contents by fire with limited cover for smoke and it does not offer any benefit to third parties; wider coverage is available for a price. Until 2019, homeowners were forced to purchase expensive and inconvenient “difference in terms” coverage on top of their limited FAIR Plan policy if they wanted coverage similar to that covered by a typical home insurance policy. . However, in 2021, a California trial court upheld the California Insurance Commissioner’s 2019 order requiring the FAIR plan to provide more comprehensive coverage.

Difficulties in obtaining fire insurance are not unique to homeowners. Agricultural businesses, including wineries, ranchers and farm owners in high-risk areas, have all faced similar issues accessing affordable insurance. These types of businesses can be particularly vulnerable given that they are located in more rural areas that are particularly vulnerable to wildfires. Until recently, these companies were left without a lifeline because they were excluded under California’s insurance code from benefiting from the FAIR plan. To address this issue, California recently passed legislation ensuring that the FAIR plan also provides commercial coverage for these outdoor businesses.

This is the sixth post in the blog’s series on wildfire insurance coverage.