California tells insurers to offer discounts to customers who protect homes against wildfire

California can’t force insurance companies to offer coverage in areas of the state prone to wildfires.

But when they do sell policies in wildfire zones, the state can require them to offer discounts to homeowners who install fire-resilient roofs and double-pane windows, and take other steps to reduce the hazards.

Insurance Commissioner Ricardo Lara, trying to ease an insurance crisis that’s plagued rural California for the past few years, announced Monday that all carriers doing business in fire-prone communities will have to incorporate his “Safer from Wildfires” program — guidelines aimed at protecting homes and businesses — into their premiums.

Property owners in the Sierra foothills and other hazardous areas have been struggling with a shortage of affordable homeowners insurance. The massive wildfire destruction of 2017 and 2018 cost the insurance industry billions of dollars and prompted many of them to drop homeowners in risky areas.

Tens of thousands of Californians have been forced to buy coverage from the California FAIR Plan, the state’s “insurer of last resort.” They then have to buy traditional insurance for burglary and other risks. When all is said and done, their total premiums have doubled or tripled, costing them thousands of dollars a year.

The Department of Insurance said Monday it couldn’t provide an estimate of the size of the discounts. But in February, when Lara proposed the new regulation, officials said consumers could save an average of $100 a year, or about 8% on the typical premium.

However, reducing fire risks can be enormously expensive; a fire-resilient roof alone can cost at least $10,000, a staggering burden for many rural Californians.

Lara proposed the discount requirement in February and announced Monday the regulations have now been finalized. Insurers will have to submit new rate structures within 180 days that reflect steps taken to reduce fire risk.

Although fire losses have eased in the past couple of years, and some insurers have inched back into fire-prone communities, state officials have been stymied in their efforts to force carriers to return in droves. In 2020, insurance lobbyists killed a bill Lara championed, AB 2367, that would have required them to offer coverage in communities that met certain thresholds for improving fire safety.

To a certain extent, the industry has already begun embracing the idea of discounts for property owners who reduce their risk. Lara’s office said insurers representing 40% of the residential market offer some type of discount.

Nonetheless, Lara, who is running for re-election in November, is pushing the industry to move faster.

“My department will work diligently to increase discounts to reward the hard work that California consumers do to protect their families, homes, business and communities,” the commissioner said in a statement.

The insurance industry responded to Lara’s regulations with cautious optimism.

The regulations “will send a strong signal to consumers and businesses to better prepare for extreme wildfires, but more needs to be done to manage the increasing climate-induced wildfire risk in California while also protecting the accessibility and affordability of insurance,” said Mark Sektnan of the American Property Casualty Insurance Association.

Seren Taylor, of the Personal Insurance Federation of California, said the industry supports discounts but they “must be based on data that aligns the cost savings with the actual risk reduction. Also, home mitigation must be comprehensive and not treated as a menu of options.”

Lara’s agency has cited a 2019 investigation by McClatchy that showed the benefits of stronger roofs, siding, windows and other materials. McClatchy’s reporting revealed that homes built since 2008, when strict building codes took effect requiring fire-safe roofing and the like, were far more likely to survive the 2018 Camp Fire than older homes.

The Camp Fire destroyed more than 12,000 homes in Paradise and nearby Magalia, or about 80% of the housing stock. But it only destroyed half of the 350 homes built since 2008.