News reports from other states about homeowners losing or not being able to acquire property insurance if they live in wildfire-prone areas may seem like the problem is far from Jefferson County. The problem may be closer than one might think.
“It’s a crisis situation,” says Bob Biskupiak, a 43-year insurance professional who retired last year as Montana’s Deputy Insurance Commissioner. He adds that the problem is not simple, and involves many different groups with different motivations. Involved parties include not just the homeowners and insurance companies, but also local and state fire authorities, mortgage lenders, and realtors, among others. “It’s vital that we try to educate everyone about the issue.”
Biskupiac explains that most insurance companies that issue consumer residential policies usually spread the risk of the coverages to “re-insurers” – a group of smaller insurance companies that cooperate to spread the full value of the policies into smaller amounts. The reinsurance market that has been devastated the past few years because of large losses due to fires, floods and other disasters. Biskupiac noted the recent bridge accident in Baltimore as an example of how smaller insurers backing up the larger companies are affected by disasters. Without the re-insurers to help reduce the exposure, major insurance companies are choosing not to issue new policies, and in some cases, simply canceling existing policies. In cases where insurance coverage is bundled together for cost savings, the insured finds out that losing their homeowners policy likely also means the loss of the insurance for their cars, boats and recreational vehicles, as well.
Which leaves new and existing home owners in a situation where they must find replacement insurance, often with lesser coverage than they once had, and likely with higher premiums. Biskupiac says he does not know of any situations in Montana where insurance was simply not available, but shoppers may discover they might not get the same level of coverage they had previously, higher premiums, or may not be able to realize the cost savings from bundling coverages.
Some states, recognizing the problem their residents are having with insurers, have begun discussing creative solutions. Biskupiac described a program being worked on in Colorado where insurance companies would pay into a pool administered by the state. This pool would be used to provide minimum basic coverage to homeowners that are not otherwise able to obtain insurance to prevent a mortgage foreclosure. While satisfying the bank’s insurance requirement, these policies likely will not be anywhere near replacement values. The Montana Legislature reviewed similar plans in 2005 and 2009, rejecting the idea both times.
Some insurance companies are trying to stay in the consumer business by insisting on wildfire mitigation assessments before issuing coverage. Risk and Mitigation assessments are conducted by several private companies in Montana. An average assessment looks at the overall property, measuring tree density and planning for breaks and escape routes. Trees selected for thinning are carefully selected to maintain a strong grouping of trees, but leaving about a 20’ radius between the trunks. Pat McKelvey from Tri-County Fire Safe, a group that specializes in fire mitigation assessments and projects, says that they are trying to educate property owners that protection against wild fire is a personal responsibility, and should not just be left to insurance companies.
Assessments and mitigation efforts are not inexpensive. McKelvey also said that there are grants and other funds available to assist homeowners with mitigation efforts. McKelvey says he also has to assure many mitigation assessment customers that the assessments stay with the property, and are not shared with insurance companies or any government agencies. “They [customers] thought we would send the assessments to their insurance companies or to some big database,” said McKelvey. “That’s not right;the assessments belong to the homeowners, and become part of the property disclosure documents.” Property owners who live in declared wildfire risk areas can then show the assessments and mitigation efforts to their insurance company, who are often making blanket coverage decisions based on a geographic location, rather than an individual property assessment. The assessments can also be part of the home sale process, showing that fire mitigation efforts have been taken to make the home safer.
As the insurance assessments become more commonplace with large insurers, Biskupiak is determined to make the issue known to everyone involved in a property sale. “Too many people are buying a home, then discovering they can’t insure it because of the cost, then blame the realtor,” said Biskupiak “We need to make sure everyone involved in the process knows that this is likely going to happen.”
