Private insurance for the California fires generates controversy
The issue of private or "concierge" insurance has surfaced in the insurance-related news coverage related the recent devastating fires in California. Articles with provocative headlines like Rich People Pay for Private Firefighters While the Rest of Us Burn (Motherboard) and Another way the rich are different (L.A.Times) talk about how mega rich celebrities like Kim Kardashian and Kanye West have private forces protecting their property from the fires. Private fire forces swoop in to apply fire retardants and take other measures to protect multi-million dollar homes.
Once past the headline sensationalism, the news coverage offers an interesting view of how insurance companies are adjusting to the realities of catastrophic wildfires. And in an irony, the LA Times notes that this private coverage harkens back to the early days of home insurance: "In the 1800s, many firefighters worked for for-profit companies and would battle blazes only for those with insurance. Insurers in places including Richmond, Va., gave their clients plaques to alert crews that their homes had coverage."
In California, AIG, Chubb, Nationwide and other insurers such as PURE specialize in high-value property protection, offering wildfire risk management and prevention services to their clients. And while some insurance companies are warily looking at pulling out of the state entirely, other emerging companies are embracing the risk and developing specialty risk management services and coverages - see Church Mutual and Wildfire Defense Systems. And while these services have been primarily aimed at high value properties, more coverage is being made available for general homeowners, too.
In an article in the Guardian, Private firefighters and five-star hotels: how the rich sit out wildfires, Lauren Smiley clarifies the role of the private "firefighters":
"Insurance crews don’t battle back flames like the government-contracted ones do. Their services happen before and after a fire passes. Generally, when a policy is purchased, a risk assessor surveys the property for fire risks. Clients of some plans receive texts about evacuations and the paths fires are taking. When fires are encroaching, crews stop by to cart away flammable objects or brush from around the house that could catch fire from an ember, and sometimes install temporary sprinklers. They might spray flame retardant around a property’s perimeter, and seal vents to keep out drifting embers and smoke. In more dangerous spots, they might spray a house down with fire-retardant gel and even extinguish a spot fire."
In almost all news coverage, these private fire prevention services are seen as "in addition to" not as a replacement for public firefighting, which homeowners praise without restraint as being vital to their personal and property safety. But the private services are not without controversy and friction. Chiara Sotile of NBC News talks more about these services and how the wealthy's use of private firefighters ignites debate in wildfire country:
For some — including many firefighters from municipalities — protection from a deadly wildfire isn't something that some neighbors should be able to buy when others can’t. Furthermore, many first responders express concern that a lack of oversight and communication with private firefighters could add risk in an already dangerous fire situation.
... "Everyone has to be accounted for and listed in the Incident Action Plan. You cannot just arbitrarily throw people at these incidents," Cal Fire Deputy Chief of Information Scott McLean said. "It comes down to accountability and safety."
..."Cal Fire’s McLean emphasized that the function of these privately funded forces is meant only to be preventative, not to enter evacuation zones or stay and "make a stand" to an approaching fire. Doing so would be grounds for Cal Fire to order these outside firefighters to leave the fire zone."
Adding to the complexity and pain that the state is facing, property owners in the state are apparently seriously underinsured. In an article Insurance Business, Richard Masters, operator of Richard Masters Insurance Services and insurance litigation expert witness, points to several factors that account for this lack of adequate coverage:
- Insurance buyers wrongly equate insurance limits to the selling price of their home.
- Building code upgrades easily add to the cost of a home – as much as 35% to 50%.
- Construction costs increase following a disaster; in California, building costs have increased by 30% to 35%.
- Insurance company programs that estimate replacement costs are inaccurate “nine times out of 10."
One clear trend highlighted by these issues is that insurers are increasingly bringing risk management and loss prevention services to the personal lines market, services that will likely grow as climate-related weather catastrophes increase. This highlights the importance of the insurance agents embracing the role of consultant.