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As wildfires continue to devastate communities across California, one critical question looms over homeowners: Will my insurance cover the damage, and when will I see the payout? In a recent California Insider interview, insurance expert Karl Susman shed light on the complex dynamics at play, offering both industry insights and practical advice for homeowners facing the aftermath of these catastrophic fires.
1. The Scale of Destruction: Unprecedented Losses
The impact of the recent LA wildfires is staggering, with thousands displaced and entire neighborhoods lost. Susman shared that over 100 of his clients have suffered total losses, and the damage from smoke, ash, and heat-related issues affects many more. Although insurers are processing claims rapidly, Susman warns that some, particularly those under the California FAIR Plan, will experience slower payouts due to the overwhelmed claims processing system.
2. The California FAIR Plan: Overwhelmed Yet Essential
The California FAIR Plan was designed as a last-resort option for homeowners who cannot secure private insurance. However, as Susman explains, it’s been stretched thin due to the large-scale destruction from wildfires. With limited resources, FAIR Plan claims are processed slower than those from larger, private insurers. While the system remains financially sound, its inability to handle the current volume of claims is a growing concern.
3. Rebuilding vs. Relocating: What Does Your Policy Cover?
After a total loss, homeowners generally have three options: rebuild on the same lot, buy another home elsewhere, or relocate and build in a different area. However, choosing not to rebuild on the original site could result in receiving Actual Cash Value (ACV) rather than full replacement cost. This difference can mean significant financial loss.
4. Mortgage Considerations: Lenders Still Have a Say
Even after a total loss, the mortgage lender must be involved, as they are a payee on the insurance claim. The insurance check is often made payable to both the homeowner and the lender. This ensures that the home is rebuilt or, in the case of a relocation, that the mortgage obligations are met.
5. Underinsurance and Construction Inflation: The Growing Gap
Many Californians are underinsured, meaning their coverage limits do not match the true cost of rebuilding their homes. After a disaster, the cost of construction can rise sharply, leaving homeowners with insufficient coverage to rebuild. Susman stresses the importance of ensuring that policy limits reflect current construction costs and suggests adding extended replacement cost coverage to account for inflation and material shortages.
6. Why Insurance Rates Will Continue to Rise
The frequency and severity of wildfires are changing, driving up the cost of insurance. While premium increases are expected in high-risk wildfire zones, there may be some rate decreases in lower-risk areas as insurers adapt to the new regulatory environment in California.
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7. The FAIR Plan Paradox: Expensive Yet Necessary
While the FAIR Plan offers fire coverage, it is far from affordable. Compared to traditional homeowners policies, the FAIR Plan can cost three to four times as much. However, for homeowners in wildfire-prone areas, especially those with mortgages, it’s often the only available option to stay compliant with lender requirements.
8. Admitted vs. Non-Admitted Carriers: Understanding the Difference
As insurers pull out of high-risk zones, more homeowners are turning to non-admitted carriers, which are not subject to the same state regulations as admitted carriers. These policies can be more expensive and come with less consumer protection, making it crucial for homeowners to understand the risks associated with non-admitted coverage.
9. The Ripple Effect of Reinsurance
Every major wildfire disaster triggers reinsurance claims, which are paid by international companies that share the risk. This global impact results in higher costs for insurers worldwide, which in turn affects premiums for homeowners—even those not in high-risk areas.
10. The Human Side of Insurance: Navigating Loss with Compassion
Susman closed his interview with a personal reflection on the emotional toll of disaster recovery. As an insurer, he emphasized the importance of empathy and maintaining close communication with clients during the chaos. His agency’s response to the fire is a reminder that insurance, at its core, is about more than paperwork—it’s about helping people rebuild their lives.
11. The Takeaway: Realignment and Resilience
California’s wildfire crisis is a wake-up call for homeowners, insurers, and regulators alike. Susman’s advice is clear: Review your coverage annually, especially before fire season begins. Stay engaged with your insurer, and if you encounter difficulties, escalate the issue. Understanding what your policy covers—and what it doesn’t—is critical to making informed decisions in the aftermath of a wildfire.
Final Thoughts: Adaptation in a Changing Landscape
As California grapples with increasing wildfire risks, the insurance system is under immense pressure. Susman remains cautiously optimistic, noting that while insurance rates will rise, and rebuilding may take longer, there are pathways forward. With improved regulations and greater market participation, the system can evolve to meet the challenges of the future. The key is understanding your policy, staying informed, and being proactive.
In the face of disaster, informed homeowners are better prepared—not just to recover, but to rebuild a more resilient future.
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