Homeowners on Santa Barbara County’s South Coast are getting nonrenewal notices for their insurance policies due to recent wildfires, and there is a high rate of residents being dropped in Montecito north of Highway 192/East Valley Road.
Throughout California, homeowners are losing policies, and facing steep cost increases with replacement coverage, as insurance companies look to reduce their risk, according to data released by California Insurance Commissioner Ricardo Lara’s office last week.
Lara told the organization that too many homeowners are underinsured, and his office has received hundreds of complaints related to nonrenewals, said Sharon Byrne, executive director of the Montecito Association.
The statewide data released confirmed insurance is harder to find for residents in high wildfire-risk areas. ZIP codes affected by wildfires in 2015 and 2017 — including the December 2017 Thomas Fire — showed a 10-percent increase in insurer-initiated policy nonrenewals from 2017 to 2018, according to Lara’s office.
There has also been an increase of FAIR Plan policies for homes in high-risk areas, which Lara’s office calls the “last resort for homeowners who are unable to find coverage on the voluntary market.”
A Montecito Association survey found that Chubb had ensured about 60 percent of the Montecito homeowner market, and is the primary company doing the nonrenewing, according to Byrne. The survey also revealed geographical differences related to fire risk, but not necessarily flooding or debris flow risk.
“When we walked through the insurance information with the fire guys, they noticed something we didn’t: More people were not renewed who were near mountains and above (Highway) 192,” Byrne told Noozhawk.
She said the Montecito Fire Protection District speculates that the cause is CalFire’s designation of very high fire risk for the foothill areas above Highway 192/East Valley Road, versus the high-risk designation for lower areas of Montecito.
The Montecito Association is pushing back on the extremely high fire-risk designation since the area burned in the Thomas Fire, and told Lara as much, Byrne said.
“Our fire department clears brush on private property, and we are doing a lot here to reduce our risk,” Byrne said, citing the steel-mesh debris nets installed in three creeks, efforts to build a new debris basin on Randall Road, and discussions of undergrounding utilities and creating a community microgrid.
“We know the Thomas Fire stalled when it hit the Tea Fire burn scar,” she said. “Now would be the time to double down in this market and issue policies because we already burned — we’re not going to burn again for a really long time.”
Santa Barbara County had 85,785 homeowners insurance policies renewed in 2018, and the nonrenewed policies included 1,741 initiated by the insurer (279 more than the previous year) and 6,831 initiated by the policyholder, according to the data released by Lara’s office on Aug. 20.
“It’s not all doom and gloom, a lot of people are getting renewed,” Byrne said.
The Insurance Commissioner’s Office report lists 88 new FAIR Plan policies issued for Santa Barbara County last year, and 420 renewed.
Statewide, insurance companies dropped 167,570 policies in 2018.
Insurers want to divest their exposure for general residential policies, and “it’s greatly impacted our area,” said Susan Rodriguez, senior vice president of Brown & Brown Insurance Services of California.
“It’s out into Rancho Embarcadero,” she said, referring to the Tecolote Canyon neighborhood west of Goleta. “It’s not limited to just Montecito and Mission Canyon.”
People have limited options for replacement coverage, Rodriguez said.
“For example, we had one the other day where the premium was about $3,500 and a $2,500 deductible, with a renewal option of a $12,000 premium with a $25,000 deductible with a $50,000 deductible for wildfires,” she said. “That’s hard to swallow.
“The FAIR Plan is a last resort and is, as you know, limited. People have to get an excess quote because it will only to up to $1.5 million and it’s a problem, it’s a problem for people out there.”
North of Highway 192 does seem to be the area where people have the most issues, Rodriguez added, and confirmed that Chubb has been dropping a lot of policy holders in the Montecito market.
“Let’s just say you’re in the Montecito area and you didn’t have a claim in the Thomas Fire, maybe only the civil authority, the mandatory evacuation additional living expense claim,” she said.
“Even with that, companies are nonrenewing. They’re looking at an overview, they map it, and they’re looking for brush — and even if there’s brush clearance, sometimes that doesn’t even help, with avoiding nonrenewals.”
Residents may not necessarily avoid nonrenewal if they haven’t submitted a claim recently, she added.
“People are shopping and buying something on a short-term basis and continuing to look,” Rodriguez said. “They’re calling their lender, ‘do you have any insurance we can obtain because we can’t get it ourselves?’ They’re going to Excess Surplus lines markets, not admitted carriers.”
The issue doesn’t seem to be affecting commercial properties, she added.
“I don’t think it’s scaring the buyers off, but a lot of buyers are lining up their insurance before they make an offer,” she said.
“That was never normal,” she laughed.
Buyers can get out of purchase agreements if they can’t get insurance, she noted, and buyers cannot get a mortgage without insurance — a situation that sometimes leads to cash sales.
About a year ago, there was a case of a buyer who paid cash for an $8 million-plus property.
“He wasn’t happy with the rates he was getting so he closed it anyway without insurance, and a couple of weeks later he got his insurance,” Grubb said. “That’s unusual, that’s a nervy person to do that!”
Her office takes a close look at Santa Barbara County’s debris flow risk map, and shows it to potential buyers in the Montecito market, she said.
Some properties within the risk area, with no past claims, were able to get good coverage while others outside the “red zone,” where buyer and seller had past claims, had much higher insurance costs, Grubb said.
“So it’s not just red zone, not red zone, damaged, not damaged, but it does have something to do with past claims as well,” she said.
Buyers have taken insurance coverage into consideration when negotiating the price, Grubb added.
“When they’re negotiating the price down, it’s more in the tens of thousands, but not in the millions,” she said.
» Click here for a consumer complaint page operated by the Insurance Commissioner’s Office. Click here for a list of all insurance companies offering homeowners policies in California.
» Lara’s office offers to try to find coverage for homeowners who are uninsured. Calling 1.800.927.4357 for more information.
» Rodriguez from Brown & Brown Insurance Services has suggestions for people who may be, or have been, negatively affected by residential insurance policy nonrenewals.
Do your shopping early, you may not even get your non-renewal yet because typically they are giving 60 days,” she said, noting that the state only requires a 45-day notice.
If your policy is up for renewal in January, start looking at options in mid-September, she suggested.
Policyholders should also keep insurance agents up-to-date about which markets have already been approached, so they can try new ones.
It’s a good idea to consider higher deductibles, since it can keep premiums lower, Rodriguez said. Residents should check with their lenders to see what deductible they will accept.
She advises people to carefully read their policies.
“Look at the coverage because we’re finding the cost to rebuild is greatly impacted and, you know, you don’t want to be underinsured in this marketplace,” Rodriguez said.