Drought and subsequent wildfires in the state of California have had a significant impact on the insurance property market, including for agricultural mixed-use properties with farming and agricultural exposures. The state is still recovering after severe drought conditions in the past decade, and is expected to face another season of extremely dry weather after a lack of rain in March. Extremely dry weather, unfortunately, brings ample fuel for raging and destructive wildfires. In fact, eight of the 10 largest fires in California history have burned in the past decade.
How Carriers are Handling California’s Climate Crisis
As a result of catastrophic property losses, insurers have withdrawn, and continue to withdraw, from writing coverage in high-hazard areas in the Golden State. Ron Abram, RPS Area President, shares some insights on the state of the market and solutions for insureds looking for coverage.
“While admitted carriers are still competitive for traditional farming exposures in the state, they’re continuing to withdraw from brush-exposed and mixed-use risks,” says Abram. And that’s no small impact; there are five million homes in exposed areas that need coverage.
“For example, if you have a high-value home with 50 acres of land of which 10 acres are used to grow olives or grapes, and perhaps another five acres is designed as a horse operation, the admitted market is no longer available to write the property insurance. Even Excess & Surplus Lines companies have little appetite for these types of exposures.”
Farming and Agricultural Market Challenges Like Never Before
The market is extremely difficult today, says Abram. Some mixed-use agricultural properties in hazard-prone areas may be able to obtain coverage for their home in the personal lines market, depending on the home’s value, while others may get coverage in the non-admitted market or must go through the California Fair Plan (for fire only) and require a DIC policy to pick up the other property exposures for the residence.
At the same time, these mixed-use properties are having a challenging time getting property coverage for their commercial exposures. In some cases, if the risk is eligible, coverage may be available in the E&S market while others may only obtain coverage for their liability exposures on a monoline General Liability minimum policy. Some insureds may choose to go bare while others are choosing to no longer have farming or agricultural exposures.
Prepare Your Clients (and Yourself) for a Tough Market
“The insurance-buying public is recognizing that the sticker shock of high insurance premiums in these hazardous areas is real,” says Abram.
“It’s critical for agents to get an early start with renewals, and begin engineering accounts differently. Prepare clients for the tough insurance market and the necessity to find ways to mitigate and share in their risk including modifying deductibles and limiting coverage. Let them know premiums are likely to continue to increase and coverage options are challenging.
“Agents have to do things differently moving forward, helping their customer – the insured – focus on mitigating their own risk.”