Photo via CalFire.

If you live in Hanford, Fresno, Madera, Tulare or another community on the Valley floor, you probably saw your home or business insurance rates go up last year and this year.

But if you live in the Sierra foothills, including Oakhurst, Three Rivers, Lemon Cove, Mariposa or Shaver Lake, chances are your insurance rates also increased, but at a much higher rate, or your insurance carrier stopped providing coverage in your area or stopped selling new policies there.

The result is that property owners and renters in rural and foothill areas are having to pay a lot more for their policies — and likely having to contend with higher deductibles — or, they’re looking to find cheaper coverage and likely not finding it, as so few insurers are writing new polices in these areas.

Fill in the gaps
A growing number of property owners are purchasing even more expensive plans from “surplus lines” — insurance companies in the business of covering higher-risk homes and businesses. They’re also turning to California’s “last resort” option, the FAIR Plan, a state-run insurance option that generally is more expensive than standard insurance plans though generally not as expensive as surplus lines coverage — but offering less coverage than standard plans, local insurance experts said.

Fire risk
As for why the rates are going up so high, that stems from the number of large, destructive wildfires that have plagued California in recent years.

While its not clear how many billions of dollars insurers had to pay out as a result of these fires, Liz Winterton , a personal insurance lines accounts manager for Foster and Parker Insurance, a brokerage in Oakhurst, said, “You have to figure the average homeowner’s claim, even if you have a plain, old, simple home, is going to be about a million dollars by the time you pay out personal property and the home and the loss of use.”

According to a recent report compiled for the state Assembly, “ensured losses through 2017 wiped out the entire underwriting profit insurers earned since 2000,” and that doesn’t include the “enormous” damages and casualty claims they covered in the 2018 fires.

Lingering concerns
Even before last year, the insurance industry was nervous. Though the first big fires in 2015 and 2016 didn’t generate a lot of insured property damage or casualty claims, the sheer sized — fueled by exceedingly dry conditions in California’s foothills and forest — prompted insurers to begin limiting property coverage in some parts of the state considered at high risk, and they added more areas and raised rates or clamped down on what properties they would underwrite as the fires and the property damage increased dramatically in 2017 and 2018, said Winterton, whose Oakhurst community is among those affected by the changes.

Liability to go around
It’s not just standard insurers clamping down, she said, as “reinsurers” — the insurance companies that insure insurance companies, offsetting some of their risks — have had to pay out to help cover wildfire losses their clients had to pay. As a result, reinsurers also have opted to no longer cover their client insurers’ losses in some high-risk areas or have raised their rates and increased deductibles for those areas, Winterton said.

Then there’s the case of Merced Property & Casualty Co., a small property underwriter that did a lot of business in and near Paradise that was so inundated with claims after the fire that it went under. While no other insurers have folded in the state due to the fires, the incident prompted state Insurance Commissioner Dave Jones to order financial reviews of all insurance companies accredited to operate here to check if they’re managing their exposure to fire claims.

Shrinking the map
“So now the standard insurance companies are having to assume more risk and pay more for their own policies,” Winterton said, “So companies have really cut off areas where they’re prone to loss.”

Experts note that areas considered high risk for fire cover roughly half of California, with the Sierra and its foothills, along with parts of the Central Coast, comprising much of that geography.

“So not only is it going to be harder to insure your home, and pay more if you can get it, but for your business as well” in these areas, Winterton said. “You are going to be paying more for your business [insurance], and it is getting harder to get.”

Rate increases take work
In California, accredited insurers can’t raise their rates on their own. They have to request authorization to raise them from the California Department of Insurance [CDI]. That process includes providing justifications for the requests, which includes providing their annual payouts in California on a 20-year average, said Nicole Ganley, senior director of public affairs for the American Property Casualty Insurance Association based in Washington, D.C.

A California insurance official said that insurance rate hike requests in 2018 and this year have largely been granted, justified by the high amount of insurance payouts from the prior year.

Big payouts
Not surprising, considering “catastrophe” payouts, including those for wildfires, totaled about $26 billion for California’s insurers in 2017 and 2018, far outdistancing the payouts of any other year, Ganley said, noting that the previous record for payouts in a single year was $2.7 billion in 1991.

“We’ve never been close to the losses of the last couple of years.”

Requests to CDI for insurance rate hikes have increased since the rash of big fires started, from 25 requests in 2015 to 69 last year, with some of the latest requests made more than once in the year by the same companies.

For the consumer
As for what that means for Californians paying their insurance bills, the overall average rate increase has been just 7% a year since 2016. But for properties in urban areas, customers generally are paying a lower percentage increase while those in higher-risk areas are seeing rises in their insurance bills at double-digit percentage rates, if they haven’t received non-renewal notices from their underwriters.

In some cases, the higher increases are hitting properties in and around cities, mostly for properties in less-developed areas and around parks —- Woodward Park in Fresno among them — with heavy enough vegetation to put them at risk for wildfires.

More than double
Scott Dority, an insurance agent overseeing the Clovis office of Fresno-based DiBuduo & DeFendis Insurance Brokers, LLC, said he paid about $1,700 to insure his cabin near Shaver Lake just a couple of years ago, before his carriers decided not to renew the policy.

Now he’s paying $4,000 a year, partly for a FAIR Plan policy and part for a separate “difference in conditions” policy to cover items not covered by the state-offered product.

Winterton said a home in the local foothills with a $1,400-a-year insurance quote last year might have about a $3,000 yearly rate for coverage under the FAIR Plan, along with a difference and condition policy, but that’s still less than having to pay about $8,000 for a surplus lines plan.

For somebody on a fixed income or raising a family, that jump is going to be unsustainable, said Winterton, adding that Oakhurst and the rural communities around it have high ratios of retirees being hit hard by the higher insurance rates.

Leaving home
Some can’t cope, said Dority, adding that some people are having to leave their homes because they can’t afford to insure them, “and it’s getting tougher to sell homes in areas where the insurance costs have gone up five or six times or more.”

While 2019 has brought above-average rain and snowfall to the Sierra so far this year, with fewer triple-digit temperature days than last year, there still are millions of dead and dying trees remaining from the drought years peppering California forests and other wildlands, along with layers of dead, dry brush layering the ground in those areas, potential fuel for any future fires.

What’s in the future?
That still makes the insurance industry continue to be nervous, as does the potential that drought years may become more common in the future.

In fact, in discussing the recent insurance rate hikes, the Assembly report states, “These rates also generally reflect the widely recognized ‘new normal’ of increased wildfire risks in many areas of the state by focusing the price increases in high-risk areas.”

Any relief?
As for whether these rates may ever go down, the insurance experts contacted agreed that largely may depend on whether California becomes more drought prone and whether the state can better manage fire prevention in wildland areas, which likely would include cutting down more dead trees and finding better ways to defend rural communities against fire.

Dority believes lawmakers will have to be involved, while Winterton said California’s insurance commissioner has begun talking with officials in Oakhurst and other high-risk areas, as well as with the insurance industry, to try to help.

In fact, the report to the Assembly members notes there exists sentiment that the legislators must “do something,” though what to do isn’t clear. It goes on to say that possible actions by lawmakers could include raising insurance rates in more urban areas to lower rates for policyholders in high-risk areas, but that would increase the cost of home ownership in low-risk areas. And policies that continue to allow insurers to raise rates in high-risk areas would have the opposite effect, the report continues.

It adds that “it is an unpopular and uncomfortable truth that property insurance costs in California are going to rise, and this is especially true in the [wildland-urban interface].”

It also states the imposing reforms before the insurance market has settled and the full situation can be assessed would be perilous.