Apr 19, 2018
Wildfire Insurance 101: What Practitioners and Policy Owners Need to Know
By: Rob Galbraith
Type: Best Practices
Have you ever gone on a family vacation for more than two weeks, during which you lived out of a suitcase? If your family is anything like mine, it can get pretty stressful! Now imagine having to live in temporary housing for six, nine or 12 months — or more. Imagine that in the context of being forced from your home due to a wildfire, rather than a vacation that you looked forward to and planned. It’s easy to underestimate the stress that comes with having your daily routines disrupted, never mind all of the big decisions that come with settling an insurance claim. From selecting temporary housing, to choosing contractors, to rebuilding your home, knowing how to work with insurance providers before the actual fire occurs can mitigate at least some of that stress.
Don’t be fooled.
Before I dive into wildfire insurance, I want to address the myth that if the worst happens and a home burns to the ground, then the homeowner can simply take the insurance settlement and rebuild. This perception ignores the reality that there is much more involved in the claims process than just receiving a check. In addition to the steps involved in filing and adjusting a claim, which can be numerous, there are many other major questions that homeowners face that insurance alone cannot answer. Will their neighbors choose to rebuild or move away? What will their property be worth with burned landscape all around? Will their jobs still exist if the wildfire had a devastating effect on the local economy? Will their children’s friends and favorite teachers still be at school next year? Going back to my suitcase visual, what will living out of a suitcase (for possibly months) be like for their family? There are so many decisions and issues to wrestle with when your home has been damaged or destroyed by a wildfire, and often there are no easy answers.
While insurance should not serve as a disincentive to residential mitigation, homeowners insurance can offset most (if not all) of the economic losses suffered from a wildfire, which is often crucial for a homeowner, and ultimately a community, to recover. One of the main tenets of resilience is the idea of bouncing back quickly after a natural hazard — the inability to bounce back is what turns a natural hazard into a natural disaster. Insurance helps limit how disastrous a hazard becomes. Specifically, it provides coverage for additional living expenses when you are displaced from your home, as well as money to rebuild the structure(s) on your property and replace the (replaceable) belongings that were lost or damaged in the fire.
For the Practitioner
Local insurance agents are often a great resource for answering questions that residents may ask FAC practitioners (i.e., you). Your community may also benefit from you exposing insurance agents to fuels reduction projects and other efforts to reduce the threat of wildfire. Some agents serve on local Firewise committees or Fire Safe Councils and can provide sponsorships for outreach efforts or other community-based initiatives.
Exclusive agents represent a single (usually larger) insurance company, and independent agents represent multiple (usually smaller) insurers. Both are potential partners for you and can be an invaluable resource and advocate for your local efforts. A great way to start a relationship with agents is to invite them to your next community meeting and ask them to staff a table and/or answer insurance-related questions. This allows them to be seen in the community, meet with some of their customers, reinforce your message and possibly drum up some new business!
Finally, work to build a long-term relationship with your local insurance community by providing opportunities for them to engage with residents and possibly sponsor outreach efforts. Once a few agents begin to work with you and see positive results for their business, I’ll bet that more agents will approach you to see how they can be a part of it!
Again, insurance plays a big part in making sure homeowners are protected in the event that their home is damaged in a wildfire, but it should not be considered a substitute for mitigation. Help residents understand that insurance is intended as an economic safety net, and that the claims process to rebuild is lengthy and disruptive, even when it goes smoothly.
For the Resident
There are some important aspects of being financially literate when it comes to insurance policies, including understanding:
- Your policy deductible, or the dollar amount you have to cover regarding the loss;
- Your insurance coverage limits, or the maximum amount that will be paid by your insurance;
- Coverage inclusions and exclusions (i.e., what is not covered or what is subject to lower coverage limits);
- The basics of the claims process, including the importance of having an up-to-date home inventory;
- What mitigation features and actions are required by your insurance carrier (such as defensible space requirements) and opportunities for lower rates or discounts.
The best person to speak with about your insurance policy and answer any questions you may have is your insurance agent.
Financial preparedness is an essential part of FAC.
The list of ways people and communities can enhance fire adaptation is long and diverse — ranging from defensible space to controlled burning to evacuation planning. I’d argue that financial preparation needs to be on that list too.
Consider that a recent survey shows that only 39 percent of Americans have $1,000 or more in liquid savings. In the event of an emergency, therefore, the vast majority of Americans will not be able to recover and rebuild, unless they possess proper homeowners insurance or go into substantial debt. Although the hope is that other FAC practices will prevent the loss of homes, having and understanding homeowners insurance is an essential safeguard.
Rob Galbraith is a director in the Property and Casualty Property Underwriting area at USAA. His team is responsible for developing and managing USAA’s catastrophe underwriting guidelines, including those related to wildfire. Rob has over 20 years of experience in the financial services industry in a variety of positions with USAA, Smith Barney and the Federal Reserve Board. Rob has earned several industry professional designations and is actively involved in multiple industry trade groups.
Author’s note: This post reflects my personal views and is not an official statement or endorsement by USAA.
Editor’s note: FAC Net does not endorse USAA or any other for-profit enterprise.
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