Summer Series – Will We See a Searing Season of Wildfires and What Does That Mean for Insurance?

Wildfires in the US are currently a massive concern for citizens and government agencies alike. They are triggered by both natural means and human activities, leading to considerable losses. According to a report, 85% of wildland fires are caused by humans, with burning debris, unattended campfires, equipment malfunction, etc., among the top reasons. 

Besides these, unplanned forest and grassland burns also lead to wildfires. Extreme heat and drought conditions are drivers of the same. Human negligence further compounds these disasters. To put that into numbers, 35,700 wildfires have already been documented this year (as of July 2022). And these wildfires have affected 4.8 million acres.

To cover for the losses caused by wildfire, to some extent, wildfire insurance has emerged as a new policy and is gaining popularity.

What Is Wildfire Insurance?

Wildfire insurance is a standard insurance policy for homeowners. It can be renewed annually, and it is mandatory, especially in areas at risk of such catastrophic events. For instance, provisions for wildfire insurance are standard in California, where the insurance companies must include coverage for one year during a wildfire emergency.

It’s noteworthy that the devastation caused by a wildfire is predominantly unavoidable; what best you can do is indemnify yourself financially by having wildfire insurance.

What Does a Wildfire Insurance Cover?

If a fire damages your house, wildfire insurance has various clauses in the descriptions of coverage. The coverage given in this insurance includes: 

  • Dwelling Coverage: With this coverage, you will receive help for rebuilding the home and attached structures. The covering will be up to the policy limit. You may also avail of extended cost covers that may get extended to 25% or above. 
  • Personal Property: Belongings like kitchen appliances, clothes, and furniture are involved in this coverage. This coverage usually contributes 50% to 70% of the dwelling coverage charges. 
  • Other Structures: You can get coverage for items not attached to your homes, such as a shed, fence, and garage.
  • Additional Living Expense: This coverage will be given when severe damage is caused to your home, and it is not in a livable condition. The policy will cover your hotel stay, restaurant bills, pet boarding fees, and laundry service in such cases. You can also extend the coverage here. 

Note: If you want indemnity for your damaged car, you can file a claim under the insurance portion of your auto insurance policy.

Wildfire Claims and Settlement Options

Wildfire insurance policies are different from other policies. Some of the settlement options that you can get after getting insured under wildfire insurance are: 

  • ACV or Replacement Cost: ACV is the primary coverage cost you receive. However, it cannot account for all the losses due to wildfire. They only pay the property’s depreciated value. For the replacement cost, you will get an option. In that case, you should consult with your insurer about the coverage. 
  • Guaranteed or Extended Replacement Cost: To get this option, you must insure your building. In case the building is underinsured, you will not be paid, and you may not be qualified for the replacement costs. 

Here, choosing a good insurance company for the best claim is what should be your primary focus.

Implications of Wildfire Risks on the Insurance Market

The insurance market addresses huge landscape losses in the context of property and assets during the wildfire. Most direct losses caused by wildfires are denoted to the residential properties. At present, with the increase in wildfires, the insurance companies are bearing the costs of rebuilding or repairing the insured homes. This has also led to enormous financial implications for these companies. Following are the costs that vary because of it. 

1. Premiums

An increase in wildfire risk increases insurance coverage rates. Many cases in California outline the exact reason for higher premiums. The difference is evident and substantial when compared with lower-risk areas.

2. Non-Renewal Rates

Non-renewal rates are higher in the market in higher-risk ZIP codes. However, there haven’t been any significant changes worth documenting yet. 

3. Coverage Amounts and Deductibles

The take-up rate for the insurance policy is still the same. However, the owners are opting for fewer coverage policies and are also choosing higher deductibles. 

How Can Insurance Agencies Help?

Wildfires are inescapable for the most part; however, the claims to recover from them can be planned. If you live in a wildfire-prone area, you should purchase a suitable wildfire insurance policy that looks for you and your property. 

At Gonzalez Insurance, we can help by providing a range of quality insurance policies for you. We understand that fires of all kinds can be devastating for your home, your belongings, and your livelihood. That’s precisely why homeowners living in wildfire-prone areas should avail an affordable and reliable coverage plan that helps them and their families recoup the losses. 

Get a free quote today!