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Fires still a major threat to U.S. homes, are owners ready?

Property and Casualty Insurance
by Somil Jain
Fires still a major threat to U.S. homes, are owners ready?
Fires still a major threat to U.S. homes, are owners ready?

Last summer, there was another large spate of wildfires in the Western U.S. that brought significant damage, displacing hundreds of thousands of homeowners and businesses. And while it's not yet clear just how active of a wildfire season the region will experience in 2021, there is some room for concern when it comes to preparedness for such a massive, damaging natural disaster.

Over the past several years, home insurance claims involving fire and lightning damage have become increasingly common, rising from fewer than 1 in 4 claims nationwide in 2014 to almost 1 in 3 in 2018, the most recent year for which complete data is available, according to Bankrate. Now, it represents the second-most common claim type, trailing only behind wind and hail damage.

Wildfire risk still looms for many homeowners in the U.S.Wildfire risk still looms for many homeowners in the U.S.

"Although trend lines above are not completely smooth, it is clear that over the five year period reviewed, both wind and hail and fire and lightning claims have become more frequent events for insurers," Bankrate notes. "This tracks with the increased overall damage from major tornadoes, hurricanes and forest fires over the past years."

The good news for consumers and insurers alike is that costs associated with fire and lightning claims had been dropping over the course of the last several years, including a 37% drop between 2018 and 2019. The average premium consumers paid for homeowners insurance worth $250,000 last year was $1,477, and it was expected that this number would likely rise at least somewhat throughout 2021.

A bigger issue
Of course, national average data does not always apply to the individual, and people who live in areas that are prone to natural disasters are likely to pay far more for their coverage. The San Francisco television station KPIX recently reported that in Northern and Central California, the average premium for home insurance can be several times the national average, leaving some property owners in dire financial straits and, simultaneously, without many options to move out.

A real estate agent in Pollock Pines, California, told the station that she has seen some nearly completed home sales stop dead in their tracks once buyers realize that they may pay as much as $8,000 per year for coverage. In some extreme cases, she noted, some of her clients get insurance premium quotes of $19,000 annually. This is caused not only by increased risk, but also the extremely high home values in the Golden State.

At the same time, even those who do go through with a sale, or continue to stay in their homes, are getting squeezed. One homeowner interviewed said that over the last four years, their premiums have increased from $2,100 — already north of the latest national average by nearly 50% — to $8,400, despite efforts to reduce fire-damage risk on his property.

Increasing preparedness
Despite these issues, and the other fire risks that many homes face on a daily basis, there is evidence to suggest that many owners are simply not prepared for such an incident. A recent survey from Value Penguin found that 60% of people nationwide haven't conducted a standard fire drill for their homes, and 25% don't have a fire extinguisher within their homes. Moreover, two-thirds haven't tested their smoke detectors in the past month, and this may have been a particularly common problem for people living in multi-unit homes.

Homeowners seem to be slightly more prepared for a fire than renters are, but even still, fewer than 1 in 3 reported having fire extinguishers in their homes, and one-third report being certain that their insurance will cover their needs in the event of even a catastrophic fire. Another 25% assumed that their coverage would be sufficient, but hadn't actually reviewed their policy. Alarmingly, 4% knew for sure that their homeowners insurance wouldn't cover them in this case, and 3% didn't have homeowners insurance at all.

What can be done?
Because of these shortcomings, many experts recommend that people be more proactive about obtaining the kind of home insurance they need, especially when it comes to ensuring they are covered for their properties' unique risk factors. Sacramento, California, television station KTXL warned that people living in a fire zone need to take preparatory steps to reduce on-site risk before fire season formally arrives, including with upgrades to their homes. Moreover, now is the time to start reviewing their policies to make sure they are adequate for the ways in which their properties have changed over the past year.

Insurers need to be proactive about reaching out to people living in areas at high risk for natural disasters  — including wildfires, hurricanes or tornadoes — to let them know about the issues they may face. That could encompass everything from asking them to review their policies, upgrade them as needed or take action to improve their protections.

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