CLAC Corner: An Update from the Wildfire Insurance Task Force

If you’re wondering what CAI-CLAC’s Wildfire Insurance Task Force has been up to over the last two years, here is a summary of our efforts on behalf of California community associations and where we stand currently.

The Wildfire Insurance Task Force of CAI’s California Legislative Action Committee (CLAC - Home - California Legislative Action Committee - CAI-CLAC (caiclac.com)) has been actively advocating to state legislators, the California Department of Insurance (CDI), and the California FAIR Plan (CFP) that urgent change is needed to address the wildfire insurance crisis, specifically with respect to California community associations.

Here is an overview of our efforts and the hurdles we’ve encountered – which will serve to at least partially explain why change has been so slow and may yet take some time:

1.     We had to begin by educating the various parties that community associations purchase commercial insurance – as virtually all past efforts of state-level agencies (like the CDI and CFP) have been focused solely on individual homeowners’ policies (personal insurance). While these are important and appreciated, more is needed to provide relief to the 14 million+ California homeowners who live in HOAs and condos. The California Department of Insurance (CDI) has acknowledged this distinction and is now aware of it, but we need to continue to educate our legislators about this nuance, because many of the draft bills we see are still focused exclusively on personal/ homeowner’s insurance.

2.     The California FAIR Plan (CFP) was created to be a “market of last resort” for homes and businesses unable to obtain insurance elsewhere, but the program’s lack of transparency, clarity, and coverage options for community associations (which do not fall neatly into either the “home” or “business” category) are hindering that mission when it comes to common interest developments. The Task Force testified about this at a hearing in July 2022 and submitted detailed, technical suggestions at that time regarding how these issues could be improved by the CFP.

3.     We’re all aware that the catastrophic nature of the wildfire peril has caused a mass exodus of insurers from the marketplace; very few companies remain available to write ANY coverage in California’s wildfire-exposed areas. Similar to hurricanes, floods, and earthquakes, wildfire has become a cause of loss which the standard insurance market is unable to adequately underwrite or price. Current regulation, however, prohibits standard insurers from excluding wildfire or even applying different deductibles, limits, or other terms or conditions to coverage for that peril. We do not even have a standardized definition of “wildfire” in the insurance industry at this time. (A member of the Task Force addressed the Insurance Services Office (ISO) about this at their annual conference in early November, but they are unwilling to move forward on it until there is a reasonable pathway cleared with regulators for it to be useful.)

Insurance companies are subject to strict solvency regulations, and if they are (a) unable to obtain adequate premium for the catastrophic loss potential associated with wildfire, and (b) legally prevented from reducing their risk by limiting coverage for wildfire, then the insurance options available to owners in these locations will continue to erode.

4.     In October 2022, California Insurance Commissioner Lara enacted a new regulation (“Safer From Wildfires”) requiring insurance companies to recognize mitigation efforts and provide discounts for these. This regulation applies to both personal and commercial insurance and was intended to assist community associations as well as individual homeowners, but there are some technical issues with the rule’s language that will prevent it from being much help to associations. This said, it’s still a great step for homeowners, and we’re surely thankful for it.

The Task Force is working to compile an up-to-date handout with talking points for homeowners to reference as they contact their legislators and the California Department of Insurance. We are planning to host a (Virtual) Town Hall after Advocacy Week in April where we will review these talking points and answer questions about them. If you haven’t already done so, we urge you to take a moment to sign up for CLAC updates here: CAI-CLAC : Sign Up to Stay in Touch

Thank you for your support of CLAC and for your interest in the progress of our Wildfire Insurance Task Force. We are motivated to find sustainable solutions to this crisis, as we recognize the untenable burden it has created for so many California communities, and we’re grateful for your partnership in these efforts.

For more information on CLAC, upcoming Advocacy events, and how your can support their efforts, visit www.caiclac.com.