Homeowners insurance carriers in California and other westernstates have launched a public awareness campaign designed toencourage homeowners to conduct policy reviews to ensure that theirpolicies provide adequate policy limits in the event houses aredestroyed in what is stacking up to be a long and busy 2015wildfire season.

About 59% of the Golden State’s homeowners hold policies withinadequate limits due to kitchen or bathroom upgrades or dwellingadditions, and the Property Casualty Insurers Association ofAmerica (PCI) aims to cut that percentage. The association unveileda list of physical and financial preparation tips during itsWildfire Community Preparedness Day on May 2 and showcased theevent as a way to kick off public awareness of the upcoming 2015wildfire season in California and other at-risk states likeArizona, Nevada, Oregon and Colorado.

“Holding and participating in fire safety drills is the firststep,” said Christopher Hackett, PCI director of personal linespolicy. “Physical preparation, such as clearing defensible spacearound your home, and financial preparation, such as maintainingadequate homeowners insurance are critically important aswell.”

Worsening drought conditions are driving fire officials topredict the 2015 wildfire season could inclde more than 1,000 megawildfires in California, with each blaze destroying in excess of10,000 acres.

“We are seeing wildfires in the United States grow to sizes thatwere unimaginable just 20 to 30 years ago,” U.S. Forest ServiceChief Tom Tidwell told Congressional legislators in March. “Weexpect 2015 to continue the trend above the average activity.”

Technology combats wildfires

Worsening fire conditions brought on by the lack of rain andsnow pushed Verisk Insurance Solutions to expand its satellite datadriven FireLine wildfire risk management service into Montana,Oklahoma and Wyoming on May 4. Use of data from FireLine hasproven to improve insurer underwriting and rating decisions inCalifornia and nine other western states--Arizona, Colorado, Idaho,Nevada, New Mexico, Oregon, Texas, Utah and Washington.

FireLine provides insurers with information to assess theeffects of fuel, slope and road access during wildfires. FireLinedevelops a score for each primary risk factor and an overallwildfire hazard score.

A view of the Round fire at Wheeler Crest near Bishop Calif.on Friday Feb. 6, 2015. Firefighters gained the upper hand on awind-driven wildfire that destroyed 40 homes, burned nearly 11square miles and forced about 150 people to leave two smallCalifornia towns at the eastern base of the Sierra Nevada. (APPhoto/Jim Stimson via CalFire)

“FireLine helps insurers manage wildfire risk at individual riskand aggregate risk levels,” said Steve Lekas, vice president ofproperty underwriting at Verisk Insurance Solutions.”

Carriers underwriting HO risks

Insurers like ACE have already had extensive experience managingwildfire exposures for high net worth HO risks and plan to continuetheir strategy regardless of drought conditions.

ACE completed on April 1 its acquisition of personal linesaccounts worth $891 million in gross written premiums fromFireman’s Fund, now called Allianz Global Corporate &Specialty. The renewal rights deal included existing reinsuranceliabilities and access to a network of 1,100 Fireman’s Fund agentsand brokers.

The Allianz-ACE deal will help ACE diversify by growing itsprofitable high net worth home business, especially in the Westwhere Fireman’s Fund was a major player. ACE personal lines andsmall commercial lines last year posted a robust underwritingprofit with a 91.1% combined ratio from $909 million net premiumsearned. In 2013, ACE personal lines and small commercial lines putup a 94.7% combined ratio from $812 million NPE.

Allianz’s U.S. personal lines arm jettisoned its United Statespersonal lines business so the Germany-based carrier can focus onits more profitable commercial lines business totaling in $3billion gross written premiums. Allianz’s personal linesnotched a 120% combined ratio in 2014, a big increase from the103.5% combined ratio the insurer recorded in 2013. Most of lastyear's losses stem from fire-related homeowner losses last yearespecially in California.

ACE Private Risk Services Division President James Williamsonsaid ACE will use state-of-the-art technology and methods that arevery similar to those that were used by Fireman’s Fund forhomeowner accounts.

“As a result of ACE’s acquisition of the renewal rights to thepersonal lines business of Fireman’s Fund, we expect to offerreplacement policies to the vast majority of Fireman’s Fundpolicyholders, including those who have homes in wildfire-proneareas. The underwriting teams at both companies had extensiveexperience managing wildfire exposures,” he said.

A wildfire approaches homes on Wednesday, May 14, 2014, inSan Marcos, Calif. Flames engulfed suburban homes and shot up alongcanyon ridges. (AP Photo)

California HO rates for accounts in major wildfire prone areascould rise in excess of 50 percent of what rates were 25 years ago.The disappearance of major HO writers like Allianz will shrinkoverall capacity forcing insurers to hike rates particularly inwildfire zones.

“PCI encourages people to shop around if carrier raise ratessignificantly,” advises Nicole Mahrt, PCI’s Western Region PublicAffairs Director.

Drought hits crop carriers

The California crop insurance marketplace will lose some of itsluster as a state where insurers have historically chalked up bigprofits. This might mean crop carriers will reduce agencyappointments or withdraw from the state.

Central Valley farmers this year will let up to 500,000 acres ofadditional crop land go fallow when water deliveries are shut off. Last year growers grew crops on 7.5 million acres of farmland.

“If insurers accumulate major losses from the West Coastdrought, this will affect their bottom lines and will force somecarriers to pull away from the state,” said Dominic Fino, an agentat Hanford-based Golden State Crop & Insurance Services.

Crop insurers are expecting federally subsidized crop rates formajor crops like corn could fall as much as 23% because theCongressional Budget Office forecasts commodity prices for corn andother major crops are falling. Farmers would see crop insurancerates fall, but crop brokers will see commission revenuedeclines.

Daniel Borsuk is a career property and casualtyinsurance industry journalist who wrote articles forCrittenden Research Inc., from 1989 through2014. Before joining Crittenden, he was a writeror editor for newspapers in San Francisco,Yuma, Tucson, and Carson City. Borsuk lives in the SanFrancisco Bay Area.