Growing wildfire risk leaves states grappling with how to keep property insurers from fleeing

BOISE, Idaho– Months after a catastrophic fire burned more than 2,200 homes in Hawaii, some property owners are getting more bad news: Their property insurance will not be renewed because their insurance company deems the risk too high.

It’s a problem that has emerged in states across the US as climate change and increased development have increased the risk of wildfires and other natural disasters damaging communities. Insurance companies, government regulators and researchers are grappling with how to keep insurance companies afloat while keeping residents and their property insured and protected.

“I think most insurers are very grateful that they are committed to the Hawaiian market, so we haven’t seen any large-scale drawdowns” after the Aug. 8, 2023, fire burned through Lahaina and killed 101 people. People, said Gordon Ito, Hawaii’s insurance commissioner, during a Wildfire Risk Forum for insurance commissioners at the National Interagency Fire Center in Boise, Idaho.

But one or two insurance companies have stopped renewing policies for wood structures such as townhomes located in wildfire risk areas, Ito said Monday, in part because the companies have seen their own insurance costs rise. Property insurers typically have their own insurance coverage to help when there are large payouts, such as the approximately $3 billion in claims paid so far for an estimated $6 billion in damages from the Lahaina fire. But those “reinsurance” rates are rising, Ito said, and that’s forcing some companies to reevaluate the policies they’re willing to issue to residents.

The same thing happened in Colorado after the 2021 Marshall Fire destroyed 1,100 homes in Boulder County and caused an estimated $2 billion in damage, said Jason Lapham, deputy commissioner of the Colorado Division of Insurance. Last year, Colorado lawmakers approved the creation of the Fair Access to Insurance Requirements (FAIR) Plan, which is expected to provide bare-bones title insurance coverage to residents who cannot get insurance from a private company starting in 2025. Other states such as California, Louisiana and Florida have also resorted to offering their own state-affiliated “insurers of last resort,” which can fill the gap when the private insurance market leaves an area due to the risk of natural disasters.

Insurance industry researchers say part of the solution could come from homeowners taking steps to make their properties more fire-safe.

“This hazard is a preventable hazard, and it takes the will to change and do something different,” said Anne Cope, chief engineer of the Insurance Institute for Business. & Safety at home. She later demonstrated her position by taking the commissioners to two nearly identical buildings: one made of fire-resistant materials with plenty of space between landscaping and the structure, and the other built with traditional materials and landscaping. Small fires were set next to each building, and the fireproof building remained largely undamaged, while the traditional building was quickly engulfed and burned to the ground.

Research shows that protecting homes from blowing embers using fire-resistant roofs and gutters and keeping the area around a home clear of easily combustible materials makes a big difference, Cope said.

In the early 1970s, the U.S. had more annual fire deaths than any other industrialized country, Cope told insurance commissioners, but a 1973 government-commissioned report on the problem called “America Burning” led to dramatic improvements , partly due to the widespread adoption of smoke detectors and building codes.

“We can do that here with suburban fire,” Cope said, by protecting homes from blowing embers using fire-resistant roofs and gutters and taking other basic steps such as maintaining defensible space around a home. Wood roofing materials are not only statistically more likely to lead to the destruction of their own building in a fire, but also to the destruction of 10 other buildings nearby, she said. Juniper bushes and wooden fences and patios near homes are also likely fire entrances, as are gutters filled with debris.

Once a building catches fire in a community, the problem quickly becomes worse — while wildfires and other wildfires generally produce small blowing embers that are quickly extinguished, structure fires create much larger embers that can be as large as a human hand, Cope said . Those big, thick embers carry enough fuel to continue burning once they land on another structure, setting it on fire quickly.

The economic impact of a catastrophic fire lasts for years, Ito says. Insurance companies in Hawaii have already paid roughly 80% of personal property claims, nearly 100% of motor vehicle claims and about half of commercial insurance claims, he said. Commercial insurance claims typically take longer because additional data is required to document the losses incurred by a company.

But those are just the recoverable losses. The economy has been devastated by the lack of tax revenue, more than 2,000 displaced people are still living in hotels and reconstruction has not yet begun, Ito said. Lahaina was a major destination for visitors, and the fires will likely lead to an ongoing decline in the state’s tourism industry revenues of about 10% to 15%, he said.

“And for me, the heartbreaking thing is… there are quite a few Lahaina survivors who cannot afford to stay and have chosen to leave the islands because of the lack of housing,” Ito said. “And that, I think, is the biggest impact.”