Homeowners are seeing rate hikes, cancellations
Editor’s note: Solveig Torvik’s research into dramatic changes in the state’s home insurance market, and the reasons behind them, led her to expand her usual monthly column into an analysis of the new landscape that homeowners face.
We’ve known for 40 years that burning fossil fuels would end in tears. Now the long-promised bill for damages has arrived.
Was it sent to the inbox of oil companies?
It was not.
Instead, many Okanogan County homeowners are receiving notices from their insurers stating that the price of their coverage is rising steeply, sometimes by thousands of dollars annually. Some are learning that their insurer won’t sell them a homeowners’ policy at any price.
Most of us asked to pay this bill haven’t experienced, nor claimed, any property damage from climate change or anything else. No matter. We’re damage-adjacent. Last year, for example, the Associated Press reported that the Gray Fire near Medical Lake in Spokane County burned more than 350 homes.
Insurance companies lost $2 billion in this state during the last two years, according to a recent New York Times investigation. We here on the dry side of the Cascades, where wildfires have become bigger and more frequent, helped push insurers into the red.
Washington is among the top six on an alarming list of 18 states where selling homeowners’ insurance has become unprofitable, the Times’ investigation found.
“This market is starting to buckle under the cost of climate change,” said Christopher Flavelle, a New York Times reporter who helped document the insurance industry’s startling nationwide losses on homeowners’ policies. “No one thought that this problem would affect so much of the U.S. so quickly.”
Or that catastrophic climate damage would engulf almost all parts of the nation. What were once classified as “secondary perils” by insurers — occasional hailstorms, floods, wildfires — have morphed into recurring primary perils nearly everywhere.
Washington homeowners’ insurance claims rose by 22% to $1.36 billion in 2021, by 35% to $1.84 billion in 2022, and likely will reach $2 billion for 2023, according to the Washington State Insurance Commissioner’s office. The average price of our homeowners’ insurance has not kept pace. It rose 16% in 2023.
Behind the costs
While the inflationary costs of materials and labor for rebuilding homes do drive up insurance costs, there’s also something else going on here.
A leading cause of the sudden dramatic rise in cost of homeowner coverage is that our insurance companies are paying more for their coverage to the reinsurance firms that keep our insurers insured against catastrophic loss claims in high-risk areas, the Wall Street Journal reports.
When rising homeowner claims from climate-driven damages caused significant financial losses to investors in reinsurance firms, the reinsurance firms last year did to our insurance firms what insurance firms now are doing to us: raised their rates and cut coverage.
This shifted more catastrophe risks onto insurance companies. Now insurers are losing money and reinsurers are, once again, making money.
“The unregulated, global reinsurance market is a significant driver of the high cost of property coverage across the country,” Douglas Heller, Director of the Consumer Federation of America, told the Journal. Consumer advocates are asking for creation of a federal reinsurance program, akin to the federal flood insurance program, to protect consumers.
Seven insurers have abandoned our state since 2016; 130 remain. They are allowed to limit what type of damages they insure against — and to refuse to insure homes in risky Washington ZIP codes, according to the insurance commissioner’s office.
If you want these insurers to do business with you, there is something you can do, says Winthrop-area resident Harris Clarke:
First “harden” your home itself against wildfire. Then move on to remove neighborhood fire fuels. (Two programs can assist you with this; more on them shortly.)
“Smarter insurers are going to start caring about that a lot more,” predicts Clarke, a former Pemco vice-president for claims, sales and service and consultant for the insurance industry.
As climate-driven property damage costs pile up, insurance costs will continue to increase, Clarke warns.
Increased vulnerability
It’s not good to be on a list of unprofitable places to sell insurance. Not for homeowners, not for insurers and not for the economy, much of which is tied to the value of real estate.
Given ever-increasing climate damage that triggers ever-increasing costs and ever-increasing threats to the insurability of homes, this situation is fraught.
Florida’s onslaught of destructive hurricanes upended its insurance market; insurers fled. California’s cascade of multiple billion-dollar fire and other climate-related catastrophes caused another insurance market meltdown.
Those states, like ours, have a FAIR Plan insurer-of-last-resort option for homeowners who cannot find other coverage. It’s underwritten by the reinsurers of insurance companies. No Washington state taxpayer funding is involved. But FAIR Plan policies typically cost more.
Washington is economically exposed to destructive climate events in its own special way. Lacking a state income tax, we heavily rely on property taxes to fund schools, police, firefighting and other essential government services.
Tying government functions to property values leaves Washington vulnerable to bad outcomes if insurance issues cause the real estate market to seize up.
Prospective buyers of homes who need a bank loan must show banks that the home they wish to buy is insurable. But if owners cannot sell their homes because they cannot affordably be insured, sooner or later these properties lose market value — which is what our property taxes are based on.
If property taxes must be reduced due to falling home values, and those losses in market value become deep, widespread and enduring, revenues necessary to fund government functions will be reduced.
Commissioner’s responsibilities
Washington State Insurance Commissioner Mike Kreidler must approve insurers’ requests to raise, or lower, prices their customers pay for insurance before rate changes can go into effect.
To help insurers who are losing money in this state, Kreidler recently sped up the process for reviewing their rate increase requests by hiring three additional actuaries, according to Kreidler’s spokesman, Aaron Van Tuyl.
Kreidler, who’s been insurance commissioner for 24 years and will not seek re-election this year, founded and led the Global Warming Work Group for the National Association of Insurance Commissioners.
His duty as commissioner is to ensure that insurance is available and affordable. That’s a precarious balancing act in normal times, never mind during climate crisis.
He must keep his foot on the brake to avoid unjustifiable premium increases for consumers. That ensures affordability of insurance coverage. But he cannot step so hard on the brake that the insurers cannot make a profit. If he does, the vehicle stops; insurers flee. That undermines availability of coverage.
Kreidler’s office encourages homeowners in fire country to comply with the insurance industry’s IBHS Wildfire Prepared Home recommendations to harden their homes against wildfire. That program outlines how to eliminate common ignition sources.
Firewise ignored
But Firewise USA, a promising additional tool for inducing homeowners to reduce their wildfire risk, has been all but ignored by both the insurance industry and our state’s insurance regulator.
Firewise USA is the National Fire Protection Association’s 22-year-old program that urges homeowners to reach beyond their own homes into their neighborhoods to achieve more robust fire protection. Its goal is to reduce fire risk by also eliminating neighborhood fire fuels that endanger homes.
The Methow Valley has 16 of Okanogan County’s 17 designated Firewise communities, with Libby Creek, Lost River, Pine Forest, North Village and Cascade Condos among them. Chiliwist became the first in 2013.
The county adds one or two designated Firewise communities each year, according to Eli Loftis, the county conservation district’s lead planner for the Firewise program. Its work is coordinated with the state’s Department of Natural Resources.
Loftis arranges free evaluation visits to neighborhoods and provides a formal report on mitigation measures needed in the community for it to qualify for the Firewise designation. Grants are available to help pay for some of the fuel mitigation, which must be maintained if the community is to remain qualified.
Insurance regulators in 10 other high fire-risk Western states allow insurers to give fire coverage discounts to customers who live in designated Firewise communities.
But not ours.
California’s insurance regulator in 2014 ordered insurers to give Firewise discounts to homeowners. Texas, Colorado, Arizona, Oregon, New Mexico, Utah, Wyoming, Montana and Idaho followed suit after USAA, an insurance company that serves military-related customers, requested that Firewise discounts be allowed, according to Michele Steinberg, Wildfire Division Director for Firewise USA.
Arizona, for example, began by allowing a 5% discount on the cost of the entire homeowner policy for customers in designated Firewise communities. Later USAA introduced a wildfire premium calculation that gave homeowners a 15% discount only on the fire premium portion of the policy, according to documents on file with the Arizona insurance regulator’s office.
Why not here?
USAA was successful in getting the Firewise discounts approved by the other state regulators because it presented fire loss documentation showing that their customers who lived in designated Firewise communities had better success avoiding wildfire losses than those living in non-Firewise communities, said Steinberg.
Firewise USA does not lobby insurers or their regulators to provide homeowner discounts, nor does it “certify” neighborhoods as Firewise; it “designates” them as such, she said.
Insurers who enter a customers’ address into Verisk, a database used by the insurance industry, can see whether the home to be insured is in a Firewise-designated community, Steinberg added.
What’s our insurance commissioner’s rationale for not allowing insurance discounts for homeowners who invest time and money to reduce fire risks in their neighborhoods?
“Firewise is a community-level plan, but it does not require everyone in the community to participate. That makes it difficult to rate as a discount. The IBHS Wildfire Prepared Home designation, on the other hand, can be applied to a single structure, which we see as a slightly better path for the individual homeowner,” said Van Tuyl.
“The reason we don’t require the discount is we want the science and data that shows the mitigation reduces claim costs. Without that, the ‘discount’ is just cost sharing that’s passed on to other policy holders in the program,” he added.
Arguably, “cost sharing” that rewards property owners who reduce neighborhood fire risks but does not reward those who don’t reduce them likely would strike most policy holders as eminently fair.
“Any rate discounts insurers use need to be justified with data that supports how the mitigation effort reduces claims,” said Van Tuyl.
“An insurance company can provide that data to our actuarial staff (rate reviewers), prove the discount is fair to its customers, and seek a discount. No company has done this, but it’s an option,” he added.
That’s not quite correct. USAA did ask Washington to allow the Firewise discount in 2019.
In July 2020 Firefighter Nation published an announcement from USAA stating that Washington was now joining states where homeowners receive a Firewise discount. But a July 28, 2020, “update” added that “there has been an unforeseen delay in the effective date for policies in Washington state.”
USAA withdrew its Firewise discount request, according to Van Tuyl. Apparently, he said, a map submitted by USAA with the filing “wasn’t detailed enough.” USAA did not respond to requests for clarification of why it withdrew its discount request for homeowners in Washington’s Firewise communities.
Meanwhile, eight people have filed to become our new insurance commissioner. In a state where insurers are losing money and rates are rising alarmingly, the credentials and competence of these candidates warrant the closest of scrutiny.
