Home insurance is a critical consideration when applying for a mortgage. Without insurance, it’s exceedingly difficult to purchase a property. However, with climate change influencing weather patterns and contributing to the increasing severity of natural disasters, some insurers are reassessing their coverage to better manage their risk.

Insurance risk management is a topic that has cropped up in several U.S. states. This summer, Allstate and State Farm announced that they would no longer write new policies in California and indicated that the frequency and intensity of natural disasters contributed to their decision.

What drove two of the largest insurers in the U.S. to make this decision? How can regulators help manage risk for insurers, carriers and homeowners?

In this episode of Core Conversations, host Maiclaire Bolton Smith sits down with Senior Product Manager Jamie Knippen to talk about these questions and how understanding wildfire risk scores can help indicate where there are opportunities for risk mitigation.

In This Episode:

3:01 - What happened when two major insurers stopped writing new policies in California?

4:35 – Why are insurers only now saying “This is enough”?

5:54 – Are governmental regulations and mitigation requirements the only answer to rising risk?

8:37 – Erika Stanley gives an overview of the housing market in The Sip

9:36 – How do property, structural and community-level mitigation differ?

12:15 – Maiclaire and Jamie discuss how their jobs have made them hyper-aware of property-level risk

Links:

• U.S. Home Price Insights Report
• Wildfire Risk Report

Up Next: Will Wildfire Risk Mitigation Requirements Change the California Insurance Industry?

Find full episodes with all our guests in our podcast archive here: https://clgx.co/3zqhBZt

Maiclaire Bolton Smith:

The number one thing you can do to be prepared for a hazard is believe it will happen, and educate yourself on what are the things you can do to prepare yourself. I think that really does pertain to every hazard. It’s just understand what the risk is and believe it might happen to you.

Welcome back to Core Conversations: A CoreLogic Podcast where we tour the property market to investigate how economics, climate change, governmental policies, and technology affect everyday life. I am your host, Maiclaire Bolton Smith, and I’m just as curious as you are about everything that happens in our industry.

We talk about it all the time on this podcast: climate change. Our changing climate has affected nearly every aspect of the property market, but one segment in particular that’s faced difficulties is the insurance industry.

Recently, California Insurance Commissioner Ricardo Lara, said, “The insurance sector no longer has the luxury of thinking only of the year ahead. Insurance companies, regulators, and consumers all must learn to consider and prepare for the long-term.”

Some insurance industry advocates have echoed the fact that there are barriers to long-term thinking. To emphasize the importance of these barriers, several insurance companies in California have ceased writing new insurance policies in the state. So, to talk about what this decision to no longer write new policies in California means for homeowners in the state, as well as for the future of the insurance industry, we have Senior Product Manager, Jamie Knippen with us. Jamie, welcome to Core Conversations.

Jamie Knippen:

It’s fantastic to be here. Thank you for having me, Maiclaire.

MBS:

Okay. I’m really excited to talk to you about this one, but it’s your first time here on Core Conversations. So, why don’t you get us started and tell our listeners a little bit about yourself. Who are you? What do you do here at CoreLogic?

JK:

Perfect. Thank you. It’s a pleasure to be here. But yeah, to give some background, I come from an environmental science background with a special focus on geographic information systems. So, when I first started with CoreLogic, I actually worked on creating, editing, and maintaining a lot of the geospatial hazard and risk management data before transitioning into product management.

So, today, I’m the senior product manager for our wildfire products, which include deterministic products such as our Wildfire Risk Score and our Wildfire Mitigation Score, as well as our U.S. Wildfire Model, which is our full simulation probabilistic model. So, with all that said, I really get to talk about the hot topic that keeps on getting hotter due to the shifts that are happening in the industry.

MBS:

Yeah, and it definitely is. And you and I work together really closely here at CoreLogic. So, I know that you are the best person for us to talk to about this topic.

Erika Stanley:

We’ll get into the detail of why the insurance landscape is changing, but first, I wanted to remind our listeners that we want to help you keep pace with the property market. To make it easy, we curate the latest insight and analysis for you on our social media where you can find us using the handle @CoreLogic on Facebook and LinkedIn or @CoreLogicInc on X, formerly known as Twitter, and Instagram. But now, let’s get back to Maiclaire and Jamie.

MBS:

I guess for a little background here, State Farm accounted for 20% of bundled home insurance policies and 13% of commercial policies in the state, and then Allstate was the fourth-largest property insurer in California, according to data from Vox. So, the fact that these two major insurers are now not writing new policies is really big news. So, can you give us a little context on what happened here?

JK:

Completely. I think it’s really important to start with that everyone’s saying the same thing. This includes regulators, insurers, and companies like ourselves. The market has shifted and continuing to change, but everyone’s really focused on that need for a long-term view and understanding of risk. The thing with the market is that it can’t be tied down to one individual pain point. Instead, it’s a combination of a few different things like climate change, the movement of people out west, and specifically the growth of population in areas like the wildland-urban interface, which is that high-risk zone in most cases. And also the regulation and the current rights that are allowed by use of different types of models, that plays heavily in California.

So, due to all of this and some of the movement that we’re seeing with some of these larger carriers, the big message is that change does need to occur. Carriers and regulators do have the same priorities, but they want success as well as stabilization.

MBS:

Sure. Yeah.

JK:

But carriers in California have really identified those barriers and have had to make those hard decisions like walking out of the state. So, without new changes by the regulators, they’ve really put their foot down and are looking for change.

MBS:

Wow. So, okay, there’s a lot there, Jamie, I want us to dive in a little bit. So, wildfires have been happening in California forever, and especially in the last five or 10 years, we’ve heard of these really damaging ones and really, really bad ones. But why now? Why have insurance companies finally said, “This is it, I’ve had enough, I can’t do this anymore.”?

JK:

And to really get into the details though, 16 of the top 20 most destructive fires have occurred in the last seven years in the state.

MBS:

Wow.

JK:

So, not only have the losses gotten larger and more catastrophic, but decisions surrounding the approach to wildfire have had to come quickly.

MBS:

Wow.

JK:

So, regulators are making these decisions and implementing these changes, and insurers have had this short time to react and also make smart decisions within their business. So, altogether, it’s leading to this more complex environment.

MBS:

I know earlier this year in March, we chatted with Paul Brown on how the California Department of Insurance announced their new requirements for insurers and property owners all with focuses on mitigation measures and all with the state’s Safer from Wildfires mandate.

I guess too, if we think of opportunities, if we think of mitigation, this is really the only thing that’s going to help us here. We can’t necessarily stop fires from happening from a hazard perspective, from a climate change perspective, the fuels are there, but from a mitigation perspective, that’s really where a lot of this focus seems to be. Are there opportunities to make mitigation or the mitigative measures more effective? I mean, I assume each property is a little different too. Yeah.

JK:

Completely. Yeah. So, I think when it comes down to it, legislation definitely continues to play a large role in the insurance market. And it really raises the importance of using things like risk models to prioritize what can be done and seeing what those effects are in terms of how they decrease potential losses and costs.

And so, it’s not only what mitigation can do, but it’s prioritizing what can be done from a financial aspect and that future and long-term view as we keep talking about. So, there’s definitely different ways to increase the effectiveness of mitigation, and that can really be done at the property, community, and structure level.

MBS:

Okay.

JK:

The CDI is the California Department of Insurance. This really had a two-tiered approach. So, it was that emphasis on mitigation itself and the importance of what it means from that property, structure, and community level, but also look to educate consumers in the state about their risk based on where their house was located, and also hope to encourage consumers to continue to mitigate their property.

ES:

Find out more about the property market in the U.S. Home Price Insights report. The link is in the show notes. And that’s The Sip. See you next time.

JK:

So, diving into what that can look like and where maybe mitigation should move towards is breaking down those property, structure, and community-level mitigation actions.

MBS:

Okay.

JK:

So, the property level really focuses on a structure’s defensible space. So, is there living vegetation within five feet of a property? Thirty feet? Do you have tree overhang which could cause for easier spread of flames? Do you have dead vegetation? And what I mean by that is something like firewood right up against your house, so that if lit, a wildfire would have an increased level of available fuels potentially making it more severe.

As you move into the structure level, you’re looking at those home-hardening details. So, if they have a Class A roof, if they have enclosed eaves, if they have dual-pane windows. And then community level, those are different efforts and different programs that are run through all different states. One of them is the Firewise USA communities that are run by the NFPA. The NFPA is the National Fire Protection Association. And the thing that the CDI really focused on is the incorporation of those 12 mandatory mitigation factors and seeing how it could affect the risk and how it could affect the premium.

But there’s more than just the 12 potential mitigation actions that they called out, that could be done. Just a few examples could be external sprinkling systems and fire-resistant siding. But on top of that, the combination of numerous mitigating actions is more important than just one.

MBS:

I’m sure. Yeah.

JK:

So, if you just have a Class A roof, but you have bushes sitting directly around your house and you have single-pane windows, the Class A roof isn’t going to do much when a fire comes through that area. But if you have a combination of factors, so you have a Class A roof, you have dual-pane windows, you have a clear zone zero, you’re starting to continue to fortify your house around that area, your house may experience less loss when a wildfire does occur.

So, these are all things to consider. And I think that that combination of the different mitigation factors at the property is extremely important, but also utilizing models to determine which mitigating actions are most important when it comes to fortifying both your house and a community as a whole.

MBS:

Yeah. I think that’s really important because you can have enclosed eaves, have a closed roof, and have a whole bunch of firewood sitting right outside of your house, and it’s not going to do you any good. So, it really is a combination of these factors that really is going to increase your mitigative measures.

ES:

MBS:

Yeah. It’s funny because as you do this, I look out my window, I’m thinking of my own house. I’m like, “Is there anything in my backyard that’s going to catch on fire?”

JK:

Exactly.

MBS:

Because when we live in an area that could be wildfire-prone, I think that this is a major consideration for all homeowners to really consider, “What can I do to mitigate my own space?” Yeah.

JK:

Completely. Completely. And I think that’s something funny that I’ve learned in this role. As I drive around different communities, I start to see the red flags or the good that homes have, and it almost makes you want to go and knock on their door and tell them all about it kind of thing.

MBS:

Yeah, it’s funny you say that because I’ve talked a lot in this podcast about buying a new house. And my husband will tell you as we drive around, he’d be like, “We can’t live there.” He can tell you now where all the high wildfire areas are because that’s what I tell him, I’m like, “You can’t live there.” I’m like, “Oh no, we’re not going in that house.” You can really start to pick them out once you really are aware.

I’ve always said from a preparedness for any hazard that the number one thing you can do to be prepared for a hazard is believe it will happen. And educate yourself on, what are the things you can do to prepare yourself. And I think that really does pertain to every hazard is just understand what the risk is and believe it might happen to you.

JK:

Completely. I think that’s a really, really good message.

ES:

Maiclaire and Jamie have been talking about understanding long-term wildfire risk and how doing so can help protect insurance carriers and governments from unplanned losses. In next week’s episode, they’ll dive into opportunities for decreasing risk as well as why risk is increasing across the board. As always, we’ll pick back up next week. See you there.

MBS:

All right, and thank you for listening. I hope you’ve enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcast to be notified when new episodes are released.

And thanks to the team for helping bring this podcast to life. Producer, Jessi Devenyns; editor and sound engineer, Romie Aromin; our facts guru, Erika Stanley; and social media duo, Sarah Buck and Makaila Brooks. Tune in next time for another Core Conversation.