Could wildland fire insurance become the next consumer casualty?

OAKLAND, Calif. - A California Department of Insurance hearing this week over the potential for fire insurance price spikes, cancellations and non-renewals is raising the specter of another insurance crisis in the state.

You cannot buy a home without it, or have an ongoing mortgage without it because it is mandatory.

The only relief valve, a state program, is very expensive and too chintzy by market standards. 

Twenty-nine years ago, the Oakland Hills were ablaze in what would then turn out to be the nation's worst urban fire with almost 3,300 homes lost and 25 people killed.

It remained number one for more than a quarter century.

"So it's clear that the fire risk has increased dramatically within the last several years said Mark Secktnan, VP of the politically powerful, Sacramento-based American Property and Casualty Insurance Association.

He says, many homeowners in wildfire prone areas are paying a whole lot more for it, or getting non-renewed or cannot find insurance. But, many sold their homes and canceled their insurance.

"If you can't get a rate to cover the risk, it makes no sense to continue to write that risk until you get adequate rates and that's what we're pushing for and we hope to work with the Department of Insurance and others to work towards," said Mr. Secktnan. 

Consumer advocates see it differently. "Sometimes insurers will come in and out of a market because they have a political agenda. That's what they're doing right now. There's 15 million homes and of those, a very small percentage of them have burned," said Amy Bach, Executive Director of Policyholders United, the 29-year-old consumer group originally formed after the Oakland Hills Fire.

She says many have been forced into the the Fair Plan, California's insurer of last resort, that grew by 36% over last year.

"The coverage that you can get from the Fair Plan is very expensive and it's very thin for what you get," said Ms. Bach.

Insurance agents and brokers are caught in the middle of insurers, who have what they need to sell, and consumers, who want it if they can afford it or are forced into the Fair Plan. David Shaffer is an independent insurance agent who works with multiple companies that sell homeowners insurance.

"The Fair Plan is a very basic fire insurance policy that leaves many protection insurance coverage gaps for consumers," said Mr, Shaffer. But homeowners may have no other choice. "I would describe what's going on today in California as the worst market for homeowners insurance in my 37 years in business," said Shaffer.

"It's not fair and it's not viable for the and private insurers to get all the better risks and then to dump the more challenging risks on a government program," said consumer advocate Bach.

If, and only if insurers, the state, advocates, consumers, communities and others work together to lower the very real risks out there, California could fall into an insurance drought that could further and massively damage the already deeply wounded state economy.