California Homeowners: Guide to Fire Insurance

With the devastating wildfires that have struck recently—like those in Los Angeles County that displaced nearly 200,000 people—you can see just how critical it is to prepare your home for potential threats. Fires don’t just happen somewhere else; they can hit close to home, and when they do, the impact can be life changing.

In 2023, fire departments across the United States responded to about 1.39 million fires, a massive number highlighting the risk we all face. These fires claimed the lives of an estimated 3,670 people, injured another 13,350, and caused property losses soaring to $23 billion. If you break it down, fire departments answered calls every 23 seconds. Residential fires were particularly common, with a home structure fire reported every 95 seconds. Tragically, a fatality occurred every three hours, and someone was injured every 52 minutes. These aren’t just numbers—they’re lives and livelihoods. If you live in an area prone to wildfires, getting the right fire insurance isn’t just a precaution; it’s a necessity. Your home is likely one of your most valuable assets and protecting it should be a top priority.

What Causes California Wildfires?

California wildfires often have human causes, with nearly 90% of wildfires between 2018 and 2022 being linked to human activity, according to the Congressional Research Service. Here are some common culprits:

• Burning debris
• Carelessly discarded cigarettes
• Equipment failures
• Unattended campfires
• Vehicles

Nature, too, contributes to wildfires through lightning strikes, with the 2020 season seeing over 14,000 strikes in California. These natural fires cause greater destruction, burning approximately 53% more land than those ignited by humans, according to the Congressional Research Service.

How Do Insurers Assess Your Wildfire Risk?

When it comes to wildfire risk, insurance companies use a range of strategies to calculate premiums. Some take a broader approach, assessing risk based on ZIP codes. If you live in an area with a history of wildfires, this could mean a higher premium—even if your property itself is low-risk. It’s not the most precise method and can feel frustratingly unfair.

Other insurers dive deeper with property-level assessments, offering a more accurate picture of your home’s unique risks. They use wildfire risk scores, which consider:

• The slope of your property.
• The type and density of nearby vegetation.
• The materials used in your home’s construction.
• How close you are to fire hydrants or fire stations.
• Any fire prevention measures you’ve taken, like defensible space or fire-resistant upgrades.

What Does Homeowner Insurance Cover in Santa Cruz?

Before shopping for homeowners’ insurance, knowing what you’re getting is important. Most policies in Santa Cruz, like the common HO-3, cover several key areas:

1. Dwelling Coverage

This is the backbone of your policy, covering the property's physical structure. It can pay to repair or rebuild your home if it’s damaged by wildfire. With construction costs in California rising 40% in just five years, having adequate coverage is crucial to protect your home. Consider adding an inflation guard endorsement to keep up with rising costs automatically. Another smart option is an extended replacement cost endorsement, which offers extra coverage if rebuild costs exceed your policy limit.

2. Coverage for Other Structures

Detached structures like garages, sheds, fences, or gazebos are typically covered at 10% of your dwelling limit. If you’ve got extras beyond your main home, double-check to ensure this is enough to rebuild them.

3. Personal Property Coverage

This covers everything inside your home—furniture, appliances, clothing, electronics, and more. Coverage usually ranges from 50% to 70% of your dwelling limit.

To make sure you’re adequately covered:

• Create a detailed home inventory of valuable items.
• Don’t forget that smoke damage, even without flames, can ruin your belongings.

If you own high-value items like jewelry, artwork, or antiques, you might need an endorsement to ensure they’re fully covered, as standard policies often have limits.

4. Loss of Use Coverage or Additional Living Expenses (ALE)

This coverage handles temporary living expenses if your home becomes uninhabitable after a wildfire—or even during a mandatory evacuation. It can help pay for:

• Hotel stays
• Meals
• Pet boarding
• Laundry and other essentials

Most policies set this at 20–30% of your dwelling coverage, but it’s worth confirming. For Californians in wildfire-prone areas, having robust ALE coverage should be non-negotiable.

Pro tip: Keep receipts during an evacuation. Mandatory evacuation expenses are often covered even if your property isn’t damaged.

The Fire Insurance Crisis in Santa Cruz

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If you’re a homeowner in California, you’ve likely noticed the growing challenges in keeping your property insured. In recent years, tens of thousands of homeowners—including about 15,000 in Santa Cruz County—have faced the shock of losing their insurance coverage. Big-name insurers are pulling back, citing the rising costs of environmental disasters like wildfires and floods.

• Safeco dropped 950 policies in San Francisco and the East Bay in 2023.
• Farmers Insurance limited new policies in July 2023.
• Allstate stopped offering new policies in June 2023 but continues to renew existing ones.
• State Farm, the largest home insurer in California, announced in May 2023 that they would no longer write new policies while continuing renewals.
• AIG withdrew from the admitted market in early 2022 but still offers specialized coverage through subsidiaries.
• Chubb scaled back in wildfire-prone areas in 2021, citing challenges in getting approved rate increases.

For many, this has meant scrambling to find new policies, often with higher premiums and fewer options. But there’s some hope on the horizon. On December 30, 2024, under mounting pressure from consumer groups and the insurance industry, the Insurance Commissioner unveiled new regulations to stabilize California’s turbulent insurance market. These changes, set to take effect in 2025, could make a real difference in expanding coverage options.

One key update is the introduction of the Sustainable Insurance Strategy, launching in January 2025. For the first time, insurers will use advanced technology to better predict wildfire risks. Instead of relying only on past data, they’ll factor in the likelihood of future disasters to set rates more accurately. This shift is expected to make insurance more sustainable in high-risk areas while giving companies more confidence to operate in California.

However, challenges remain. In January 2025, wildfires devastated parts of Los Angeles, destroying over 15,000 structures and claiming lives. This tragedy underscored the urgency of California’s insurance crisis. In response, the Insurance Commissioner quickly enacted a moratorium, stopping insurers from canceling or refusing to renew policies in affected areas. This protection will last for at least a year, giving homeowners some much-needed relief.

Another significant change came with new rules announced in late 2024. Insurers can now include the cost of reinsurance in the premiums they charge. Reinsurance is essentially insurance for insurance companies—it helps them cover massive payouts after disasters. Previously, California was the only state that didn’t allow these costs to be passed along to customers. By lifting this restriction, some insurers are already showing signs of returning to the state. For example, Farmers Insurance has increased the number of new policies they write each month, moving from 7,000 to 9,500. Despite these efforts, the market remains volatile.

The FAIR Plan

However, it’s important to know what you’re signing up for. The FAIR Plan is a bare-bones solution—it covers the essentials but often falls short of providing comprehensive protection. To fill in the gaps, many homeowners add a Difference in Conditions (DIC) policy. This extra coverage can protect against risks like water damage, theft, or liability that the FAIR Plan doesn’t include.

If your insurer has dropped you, the FAIR Plan might be your only choice. While it’s not as robust as a traditional policy, it does provide critical fire coverage, giving you some peace of mind. Here’s what you should keep in mind:

• Eligibility: If you qualify, the FAIR Plan can provide coverage for your home.
• Limitations: It’s designed as a last resort, so it doesn’t offer the same breadth of coverage as a standard policy.
• Next Steps: Consider pairing it with a DIC policy to ensure you have the protection you need.

The FAIR Plan might not be perfect, but it can be a lifesaver for homeowners when other insurance options run out. Here’s what it usually covers:

• Fire
• Lightning
• Internal explosions
• Smoke

That said, there are some key limitations you should know about. For one, liability coverage isn’t included. If someone gets injured on your property, you’d have to cover those costs yourself. Another downside? The average cost of a FAIR Plan policy is around $3,200 a year, which is often higher than traditional insurance.

Keep in mind, the FAIR Plan is under a lot of pressure. By June 2024, it was covering more than 400,000 policies—over double the number from just a few years ago. This surge highlights how difficult it’s becoming to secure coverage through traditional insurers.

How to Make Your Home Easier to Insure Against Wildfires

If you’re looking to improve your chances of getting fire insurance, consider making a few thoughtful upgrades to your home. By reducing fire risks, you not only make it easier to secure coverage but also protect your property and potentially increase its value.

• Create Defensible Space

Clear out flammable materials like dry leaves, dead plants, and wood piles around your home. Aim to maintain at least 100 feet of defensible space. This simple effort can significantly lower the risk of fire reaching your property.

• Upgrade to Fire-Resistant Materials

Consider adding fire-resistant materials to your deck, siding, or roof. Selecting Class A roofing, such as tile or metal, can greatly increase your home's resistance to flames and embers. These materials give your home long-term durability and peace of mind in addition to lowering the risk of a fire.

• Install Fire Prevention Systems

Ensure your home has important safety items like smoke alarms, fire extinguishers, and sprinkler systems. These things can help keep you safe and show insurance companies that you care about reducing the risk of fire.

• Maintain and Upgrade Electrical Systems

Bad wiring can start house fires; improve and check your electrical systems to reduce dangers.

How to Find Fire Insurance in Santa Cruz

Finding fire insurance in high-risk areas like Santa Cruz can feel overwhelming, but with the right approach, you can improve your chances of getting the coverage you need.

• Start Early

Don’t wait until your current insurer cancels your policy. As soon as you get a nonrenewal notice, begin your search for a new provider.

• Consider Non-Admitted Insurers

If traditional carriers fail, consider non-admitted insurers as alternatives. They may have higher rates; verify their financial stability with agencies like A.M. Best before deciding.

• Use State Resources

The California Department of Insurance provides tools to help you compare policies and find providers that offer Difference in Conditions (DIC) coverage.

• Consult Insurance Experts

Reach out to brokers who specialize in high-risk insurance. They can guide you through the process, explain policy details, and even connect you with insurers who might not be on your radar.

Get Expert Advice on Insurance and Real Estate in Santa Cruz

Paul Burrowes, CRS, CCEC, SFR, NHCP, LHC, REALTOR® Licensed REALTOR® with over 15 years of experience and expertise. Commits to being on time and transparent. Acts as your consultant to ensure you make the best decisions to fit your transaction at every step in the process. Negotiates towards a low-stress, win-win outcome. Handles all the details for you, ensuring the hundreds of steps in your real estate transaction go smoothly. Proudly serving Silicon Valley, Santa Cruz, Monterey, and Santa Clara Counties! | DRE# 01955563 | (831) 295-5130 | paul@burrowes.com |

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