A search and rescue team examines a property in the aftermath of the Eaton Fire in Altadena, Calif. (Credit: Kyle Grillot/Bloomberg)
As I watch the devastating wildfires sweep through Southern California, my thoughts turn not only to the immediate safety of those affected, but also with those who have tragically lost everything.
With over thirty years in risk management, especially advising high-net-worth families and spearheading innovative loss prevention programs, I've gained invaluable insights from the carrier side of the business; insights I now bring, as a insurance broker, directly to clients.
The broad impact of wildfires on insurance
These cataclysmic events create a ripple effect that extends well beyond the areas directly affected by the wildfires, significantly impacting insurance availability and affordability across the country. I’ve witnessed firsthand how carriers respond to large-scale disasters: They tighten underwriting guidelines and become more selective about the clients they choose to insure. This selective process isn't solely about mitigating potential losses; it's about identifying and partnering with homeowners who demonstrate a proactive approach to safeguarding their properties— creating a narrative of preparedness that insurers highly value.
Separately, the widespread impact of these events impact the broader economy, driving up the demand for building materials and labor. This surge often leads to increased construction costs nationwide, putting upward pressure on the annual inflationary increase insurers apply to your policy at renewal. As a result, policyholders may find themselves facing higher deductibles and reduced coverage limits as insurers strive to manage the amplified risk.
Simple yet effective asset documentation
Many homeowners feel overwhelmed by the prospect of documenting their assets, especially in advance of a potential claim. We all know this is something we should do but rarely take the time to complete it.
However, there's a straightforward solution that I always recommend: a simple video walkthrough of your entire home. This should encompass all areas including the garage, storage rooms and the exterior. Describe and record details about your belongings, especially high-value items. This not only provides a clear inventory, it also tells a story of what you value, showcasing your commitment to maintaining and protecting your assets. Such documentation is invaluable, not only after a loss, but also for demonstrating to insurers that you are engaged and responsible —qualities that insurers value.
For those who have tragically lost their homes, this video is more than just a record; it becomes a foundational document. If you are faced with the heartbreak of rebuilding your life after a fire, having such a video allows you to piece together a comprehensive inventory from memories. This approach helps ensure your claims are thorough and reflects the true extent of your loss, providing insurers with the clarity needed to process your claims with the empathy and respect you deserve. It underscores your proactive steps taken before the disaster, helping facilitate a smoother and more understanding claims process.
For someone who hasn’t taken a video inventory, another helpful strategy is to search through your photo and video library stored on your phone or the cloud. Any videos or photos taken inside your home can be invaluable for piecing together an inventory or filling in the blanks, especially when trying to recall items lost in the fire.
Community and personal responsibility in high-risk zones
Writing new policies in areas prone to wildfires is fraught with challenges, but these are not insurmountable with the right community and individual mitigation efforts. As someone who knows what insurers are looking for, I advise homeowners to focus on home hardening and maintaining adequate defensible space. Ember-resistant vents, gutter guards to keep combustible debris out, and non-combustible siding and fencing should be standards for all homeowners within vulnerable communities. Ensuring that the immediate five feet around your home is fireproof is critical.
It's essential that every member of the community adheres to these basic but proven standards. Our collective safety and insurability depend on it.
Facing reinsurance and market changes
The aftermath of recent wildfires will likely lead to increased reinsurance costs, impacting the global insurance marketplace.
To understand this impact, it's important to know what reinsurance is: Reinsurance is essentially insurance for insurance companies, helping them manage the risk and impact of large-scale claims from events like wildfires. By spreading the risk, reinsurance prevents insurance companies from bearing the full burden of claims, thus ensuring their financial stability.
As a direct consequence of rising reinsurance costs, this increase will be passed along to you and me as reflected in higher premiums and reduced availability of insurance in catastrophe-prone areas. Homeowners might increasingly depend on solutions like California's FAIR Plan, which is funded by all insurance companies that do business in the state and will likely require additional financial support to remain solvent.
These shifts underscore the need for homeowners to take proactive steps not just to physically harden and protect their homes, but also to partner with an advisor who understands these issues and can navigate these market dynamics on your behalf.
Empowering policyholders
In an era marked by an increase in natural disasters, the significance of having expert advice and making informed, strategic insurance choices cannot be overstated. As we face more frequent and severe challenges, understanding and implementing best practices for disaster preparedness and robust insurance risk management becomes crucial. What follows are some best practices for disaster preparedness.
- Risk assessment: Begin by assessing the specific risks associated with your geographic location. Whether it’s wildfires, hurricanes, floods, or earthquakes, understanding these risks is the first step in preparation.
- Emergency planning: Develop a comprehensive emergency plan that includes evacuation routes, emergency contacts, and a communication plan for you and your family. Ensure you have emergency supplies ready, such as water, non-perishable food, first aid kits, and essential medications that will last you for at least five to seven days.
- Home fortification: Invest in fortifying your home to withstand disasters. This can include retrofitting your home with fire-resistant materials, reinforcing structures against earthquakes, and elevating homes in flood-prone areas.
- Adequate coverage: Review your current insurance policies annually to ensure they cover all potential risks. It’s essential to have enough coverage to rebuild your home and replace your belongings without significant out-of-pocket expenses.
- Understanding policy details: Familiarize yourself with the details of your insurance policies. Know what is covered and what is excluded, particularly for common exclusions such as floods or earthquakes that may require separate policies.
- Document and update inventory: Keep a detailed and up-to-date inventory of your belongings. Use digital tools to store photos and descriptions of your items, which will be invaluable in filing a claim post-disaster.
Stephen Poux an executive vice president of Risk Management at The Liberty Company Insurance Brokers. Anyone affected by wildfire or concerned about potential risks can reach Poux directly by sending an email to Stephen.Poux@libertycompany.com.
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