The Insurance Dilemma Part 1: Wildfire Risk and Its Impact on Insurance Affordability in Nevada

For the first installment of our series The Insurance Dilemma, we’re exploring the intersection of insurance and wildfire risk. Living With Fire Director Christina Restaino and Outreach Coordinator Megan Kaye sit down with the Deputy Commissioner of the Nevada Division of Insurance to discuss growing concerns about how wildfire risk is affecting insurance affordability and availability in Nevada.

Restaino highlights that rising costs go beyond affordability, saying, “It's becoming an environmental justice issue.” She explains that with the increasing cost of living, housing, and insurance, the question becomes, "How can we afford to live? Home prices are at an all-time high, interest rates are very high, homeowners' insurance is very high, and you start thinking—who can afford to live here?"

Todd Rich shares the Division of Insurance’s foundational mission: “to protect consumers in their dealings with insurance carriers.” He explains that wildfires became a significant challenge for insurance companies in 2017, and “science really hasn’t caught up to what the carriers are doing yet.” Companies are still adjusting models for where and how they write coverage and are not fully accounting for communities’ pre-fire mitigation efforts. Rich adds, “Carriers aren’t really giving credit yet, and they’re not giving credit for communities that have done a really good job.”

• For more information visit the consumer section of the Nevada Division of Insurance website at https://doi.nv.gov/Consumers/
  
  
• Here are consumer insurance tips from Todd Rich:
  • Know Your Agent Options: Understand the difference between independent agents and captive market agents. Independent agents can offer policies from multiple insurance carriers, while captive agents represent only one carrier. Exploring both options can help you find the best coverage for your needs.
    
    
  • Understand Your Policy: Carefully review the specifics of your insurance policy to ensure you’re aware of what is and isn’t covered. Pay special attention to whether smoke damage is included, as this may vary between policies and carriers.

Transcript

Christina: 0:00

It's it's becoming a an affordability issue. It's becoming an environmental justice issue, right like that. This is becoming a an issue in the west of Okay, where can people live? How can we afford to live? Houses are at all time highs. Interest rates are very high right now. Homeowners Insurance is very high, and you start thinking about, okay, who can live here?

Megan: 0:33

This is the living with fire podcast brought to you by the University of Nevada Reno extension. You you. Hi there. Welcome back to the living with fire podcast. I'm your host. Megan Kaye, Outreach Coordinator for the living with FIRE program, and we are super excited to be back with some new episodes. This is our first episode of 2024 it's one of a few that we've been working on about a very hot topic right now, and that is insurance doesn't seem very exciting, but it's definitely an issue that's impacting a lot of people in the West, especially in California, but it's starting to have some impacts in Nevada. And when I mean impacts, I'm talking about rising homeowners insurance rates, and in some cases, carriers making the decision to not renew policies for some homeowners. So that is definitely a challenge for folks living or moving into, you know, more higher fire hazard areas here in the west and in other places all across the country, because wildfire is not just limited to the West Coast. On this episode, you'll hear from our fearless leader, Christina rustano. So

Christina: 1:44

my name is Christina rustano. I am an assistant professor at UNR I focus on wildland fire and forest resource issues.

Megan Kay: 1:57

So Christina herself lives in the wildland urban interface, or the WUI, and she has been experiencing impacts from rising insurance costs herself.

Christina: 2:07

This is a, you know, this is a big, big topic that a lot of us are worried about. I happen to live on the California side, so just two miles over the border, and so, you know, we're already dealing with massive insurance cancelations and extremely expensive insurance, and we know that it's happening to our neighbors in the Gardnerville, you know, in the garnerville area also. So it's not just, I mean, it's harder on our side, but this still, it's just a big concern for everybody right now, especially with extremely expensive houses and extremely high interest rates, and then you add in high insurance, and it's just like, wow, this is becoming a really expensive place to live

Megan: 2:51

together. Christina and I interviewed Todd rich with the Nevada Division of Insurance.

Todd Rich: 2:55

My name is Todd rich. I serve as the Deputy Commissioner for the Division of Insurance. The Division is responsible for protecting consumers. That's our foundational mission, is to protect consumers in their dealings with insurance carriers.

Megan: 3:10

So part of our mission at living with fire is to help communities address the growing challenges of living with wildfire. And insurance is definitely becoming one of those challenges, it already is for a lot of folks. So let's dive in and learn a little more about it. Thanks. So I just gonna lead with the kind of the big question, which is, you know, it like we're seeing in California, with folks with experiencing rate increases, and in some areas, insurance companies just completely pulling out from the from high fire housing areas. Is that happening? Happening in Nevada,

Todd Rich: 3:55

we're hearing some things, incline village, Glenbrook, South Lake Tahoe, Montreux, some of these wooded areas where consumers are finding it difficult to get coverage. We're not hearing that they cannot get coverage at all. We are hearing from like condo associations that their costs have gone way up. And let me kind of level set to begin with. I think it's important for everyone to understand from a from an industry perspective, the biggest issue facing insurance companies right now is the economic impact of climate change. And so I know we've all seen, you know, increased hurricanes on the east coast, but we're also seeing wind and hail storms and the severity and the frequency have increased. We've seen tornadoes, we've seen more flooding. We've seen huge winters like we had, not this winter, but the last winter before that. And now we've introduced kind of wildfire, which used to be kind of somewhat. Limited to the west coast and kind of more in the forested areas that no one lived in, or that's more impacting where consumers live and people have built homes and communities. So when you take this all into totality, it's caused a lot of losses for insurance carriers, and so they're starting to react by being more cautious how they write coverage. Carriers have the right to determine where they want to do business, and like any other business, if you're losing a bunch of money, you're probably going to change what you're doing. And unfortunately, for consumers that live in those areas, there isn't an impact to them. Does that make sense? Yeah, it

Megan: 5:41

does something I wanted to touch on, because you brought up these catastrophic disasters that can happen, like tornadoes and hurricanes, wildfire is a little unique when you're comparing it to these different disasters, because there are, like, evidence based actions that homeowners can do to reduce their risk is that moving the needle at all with the insurance carriers.

Todd Rich: 6:08

It hasn't really moved the needle yet. Wildfire as a hazard as apparel in the insurance world really didn't get on the radar till 2017 2018 typically, insurance carriers looked at the risk of hurricanes and flooding, and they could kind of manage that, because they kind of understood it. And then as I think, things got warmer and things started drying out more, we saw these huge wildfires. The science really hasn't caught up to what the carriers are doing yet. Like I said it started in 2017 2018 where it really hit their radar. And more importantly, it hit the reinsurance companies. So reinsurance provides a level of exactly what it's called reinsurance, which is another level. And they started having massive losses because of all these claims because of wildfires. So then they started looking at, okay, what are the models? What are we doing? And so they're charging a lot more for reinsurance to carriers such as farmers and Allstate And State Farm, so their costs have gone way up and the losses have gone up. So they're looking to increase rates and to really be, I think, sensitive about where they write coverage. And you know, we just did a big data call for data ending at the end of 23 and we still show that we have a healthy insurance market, even in Northern Nevada, even in places like incline, we've seen carriers certainly step away. And I think they're looking at their concentration, and rightfully so, because if you had a ton of houses and incline and there was a massive fire, you may not be able to pay all those claims, because you wouldn't have enough money. So they've got to be careful about where they're writing. And so I think we're in this time of where things are getting resettled. But it's important to understand that, again, it's a business, and they have to make those determinations. And I think mitigation and getting back to your question, sorry, I'm getting too far in the weeds a little bit, but mitigation does work. We've seen it. The science works. But we also learned, in this meeting last week, at least, I learned that if there's say, six pieces of mitigation you're doing for your home, and that includes defensible space, not having shrubs right next to your house, maybe a wooden fence that comes into your house, all those things, the vents that are open, because we know embers can get into those vents even after the Fire has passed, they may burn down, you know, half an hour later, but if you've only done say, five of the six that house can still burn down, so mitigation has to be complete. And the carriers aren't really giving credit yet, and they're not really giving credit for communities that have done a really good job. For example, incline village, I think, has really stepped up their game in terms of mitigation. But we're not seeing the credits yet from the insurance companies, because I don't think they're sold that if there's a massive fire and the winds are blowing at 6070, miles per hour, is that mitigation going to stop the losses? And the science is not quite determined yet, because it's still fairly new. I

Megan: 9:24

mean, I don't know. I think I'm gonna push back on that a little bit. I think the science is there. So, I mean, I understand what you're saying, I think, but I'm wondering what your opinion is, if we reframed it as like the instead of the science not being there, then industry not being like familiarized with the science. Christina, would you agree?

Christina: 9:47

I think that, you know, an argument could be made that, yes, individual homes, the mitigation has to be complete on those homes, and the mitigation has to be complete within those neighborhoods as well, right? So you need. Like every house doing it, every you know, the community working together. But I do think that we have evidence to show that it's that it's it's there. So I would also push back on I think that the science is there. I think that insurance isn't taking that science into account because they're worried about costs.

Megan: 10:27

Let's take a break from our interview with Todd rich and hear from a homeowner in Northern Nevada who's been dealing with rising insurance costs and actually loss of coverage in his area. I'm

Unknown: 10:40

Thomas Daley live in the estates at Mount rose off of Mount rose Highway at Callahan road.

Megan: 10:47

So a colleague of mine put me in touch with Tom, and I was super excited for the opportunity to talk to someone on the ground experiencing challenges with wildfire insurance, but I didn't realize that Tom also came with this pedigree of fire experience. Well,

Unknown: 11:03

I started at 16 as a volunteer firefighter. Rose up through those ranks. Was a career firefighter in Washington, DC, associate's degree in fire science, bachelor's in political science, Master's in Public Administration and Master's in safety. I was the head of fire protection for NASA for five years, Director of life safety at Hilton Hotels Corporation, followed by a 25 year career there and retired as a vice president in charge of safety and security.

Megan: 11:42

Tom shared with us his perspective, and also give us some insights into what he and his neighbors are experiencing right now.

Unknown: 11:50

Despite HOAs homeowners and the fire district all making these tremendous improvements, insurance companies aren't taking notice of it, everybody's getting either non renewed or seeing their premiums increased.

Megan: 12:03

So if you're not familiar with the area, Tom's neighborhood is kind of situated at the base of a mountain, right where a forested area kind of turns into a more sagebrush ecosystem, lots of

Unknown: 12:17

bitter brush, rabbit, brush, sagebrush.

Megan: 12:20

So this area we're describing is typically a high fire hazard area, but it sounds like Tom and his neighbors have done a lot of work to reduce their risk.

Unknown: 12:30

And up here, since we moved here in oh six, after the fire at South Lake in oh nine, neighbors got together and said we got a problem. We got to fix it. And we've been spending money and doing projects since oh nine, and I think we've probably spent, if you include the grant funds, over a million dollars. And this is a community of only 158 homes.

Megan: 12:57

So that's the 2007 Angora fire in South Lake Tahoe that Tom mentioned. Since then, the community has been doing a lot of work, like you said, and it seems to have been recognized by their local fire district. We have

Unknown: 13:10

had our fire hazard rating improved by Turkey Meadows. Fire used to be high, now it's moderate. We have a community wildfire protection plan approved for the county, the fire district and the state forester. Tom

Megan: 13:30

says that at first, insurance companies in the area were recognizing these efforts and even incentivizing them, and it was resulting in lower insurance rates. But that's changed

Unknown: 13:41

after we got our CWPP. We got our CWPP, both farmers and Allstate reduced their premiums, we gave them a ton of that, you know, ton of documents to justify, and they did. And then that went on for three or four years. And then Allstate raised their rates. And then recently, Allstate failed to renew me here and some of my neighbors as well not with Allstate. I think they were with Geico or AAA. It

Megan: 14:16

sounds like his community has been working really hard for a long time to adapt to living in this high fire hazard area, and they've taken a lot of action to reduce their wildfire risk. But those efforts are not necessarily being recognized by insurance companies, and that seems to be sending a message to homeowners. This is the way Tom puts it,

Unknown: 14:38

if you want to do the work and you want to spend the money, whether it's your your own money or your homeowners association money? You can improve your score, but if you improve your score and you don't get any benefit from your insurance company, it's sort of a waste of effort.

Megan: 14:57

Let's take a quick break. You. It. So I quickly just wanted to talk about us, the living with Fire Program. Maybe you found this podcast and you're wondering, what is the living with FIRE program? Well, we've been around since 1997 we're managed by the University of Nevada, Reno extension, and we're really a collaborative effort amongst federal, state and local fire districts and land management agencies and we create resources and connect communities and stakeholders to help them adapt, prepare and live more safely with wildfire. So if you haven't already, check out our website, livingwithfire.org for more information. Okay, back to the show you.

Christina: 15:44

What I am wondering is, does the Insurance Commission have any sort of role in making sure that price gouging isn't occurring in the insurance industry?

Todd Rich: 15:59

That's a great question. So we look at the rates that are submitted, and rates have to be adequate, meaning they have to be enough to make sure the company's in business. They cannot be excessive, and they can't be discriminatory, discriminatory in nature. We go through these rate filings, every component of it, we ask questions, we push back, and we also look at the profitability margins. And so we look at a one year and a five year profitability for the home insurance market, for the particular carrier, we can see their losses, and they've they've endured a lot of losses, and they're not profitable in many cases. So we would never, you know, we'd never give a rate increase for a company that is extremely profitable, because that would be excessive. So

Christina: 16:51

that makes sense. So then what? So the losses that have occurred in other states due to wildfire, tornadoes, hurricanes, etc, are those impacting the rates of consumers in in Nevada, because they just impact the solvency of the entire company. I

Todd Rich: 17:09

wouldn't say it impacts the rate so much. Okay. Do think it impacts their concerns about writing in areas where there's there's homes in wooded areas that WUI

Megan: 17:23

Hi there. Just popping in to unpack that jargon real quick. WUI is an acronym. It stands for wildland urban interface, and it describes areas where homes and buildings are intermixed with natural vegetation, and these tend to be higher fire hazard areas.

Todd Rich: 17:40

It's a funny sounding word, but so as communities move into these, these areas, more I think carriers are concerned. And again, I'm not an advocate of the carriers. My job, of course, consumers, we want carriers to come and write and we understand they're going to make a profit. They're for profit organizations. We don't want them to be excessively profitable. I'm a homeowner too, so I pay these prices. But no we we carry a heavy stick, and we'll use it when needed. But again, we don't want to be too restrictive and too heavy handed, because Christina, in your state of California. We've kind of seen some of those carriers leave farm or State Farm, and California is a huge market. If California was its own country, it would be the seventh biggest insurance market in the world. So we're seeing these big companies leave California. They would leave Nevada in a second if we went overboard on regulatory actions. And so we have to kind of walk this thin line of we're going to make sure the rates are appropriate and they're not doing anything that's inappropriate, but also making sure, hey, we want you to be here. We want you to be able to get rate filings, and if you need more rate, we're going to look at it, and if warrant it will approve it. But again, as I said earlier, the more carriers we have, that's better competition. I

Megan: 19:07

kind of want to do some a little bit of myth busting with data real quick. There's maybe some misunderstandings of data collection when it comes to like hazard assessments around people's properties, defensible space inspections around people's properties, because we encourage everyone to get a defensible space inspection, to contact their fire district, to contact us, to get advice on how to make their homes more resilient. And defensible space inspections are a great tool for in that process, but we've had some folks that just don't want anyone on their property collecting any data, and there's, I think, a myth, or some sort of perception that that data is going is influencing the insurance rates. Can you speak to that? Yeah, no,

Todd Rich: 19:55

that's a great question. So again, this issue is. Has come up over the last year, and so we've spent a lot of time understanding what carriers are doing. And so typically they use kind of two different models that they use in terms of home insurance. One is what we call a catastrophe model. So they plug in and they typically buy this. There's vendors out there, and some of the big carriers actually develop their own models, but they're plugging in a number of different factors. You know, what the slope is, the brush, what type of house access? You know, nearest fire departments, a lot of those things. And so they'll map out a specific area. And let's use incline village, because that's one that I think is really there's a lot of concerns right now, and I certainly feel for these people up there. So a carrier may look at incline village and say, Gosh, we've got, you know, this amount of houses covered if there were to be a fire, and then they plug in the value of each house. This is the cost, this is the loss that you're going to face. So that's a catastrophe model. And then they also use kind of an individual scoring model. So if you have a house an incline and you want to get that insured, they're going to plug in some of the factors about that house, and it's going to spit out kind of a number, and that may help drive the rate. So they typically look at slope, vegetation, access again, maybe some other factors that each carrier may think is important, and then kind of derive a point system, maybe one to 30, and if you're, you know, above a five, and you've got a higher fire risk, and you know, your number may go up in terms of your rate. So but carries are doing this, and they're these, these models are getting pictures from NASA. They're getting over, I mean, they know exactly what they're looking at. And so I think that is a myth that, if someone goes on site, no, you you want to know what's going on. And you want to know if you've got a bunch of juniper buchas right next to your house that could burn your house down really easily. So that is a myth, and I think for us to solve this problem, we're all going to have to come together and figure out effective mitigation strategies. Make sure the carriers understand it that they're giving credits. There's going to be some people that don't want to mitigate and unfortunately, they're probably gonna have to pay higher premiums. But that's only fair, right? Because if the neighbor next door is doing a great job, then they should probably pay a little bit

Megan: 22:41

less. Do these models, I think also, do they also take into account like the community, the surrounding community and surrounding parcels?

Todd Rich: 22:48

My understanding is that it could, because I think they they look at a certain area around a home. So if, if there's a fence that's close to your house, and on your side, it's great. On the other side, like you said, maybe there's a bunch of pushes, yeah, that that that is getting built into their model. I

Megan: 23:05

just wanted to ask so, when the insurance Division of Insurance is working on regulation, who are they partnering with to understand the science of fire, like, who are the partners informing you on these issues.

Todd Rich: 23:23

We've had a number of meetings with some of the fire captains, and there's a group up in Tao called parasol, which is kind of a think tank. We've met with them. We've met with some fire former fire captains and talking about mitigation efforts and wildfire as I mentioned, we attended this meeting last week in Boise, and so we really got to see the fire science. And things are moving slowly. But yeah, we're listening to everyone. Again. Our focus, if we do draft a regulation, is to make sure that it is appropriate, that it's not overbearing. Again, we can't force carriers to write, and we don't want to make the rules so restrictive that they, you know, basically pick up their toys and leave the state, because we've seen that in California, and that doesn't help anyone. You

Megan: 24:20

Todd. So during our interview, Todd kind of sprinkled in some awesome tips and advice for navigating the homeowners insurance world in Nevada. So here's a little roundup of some things that Todd suggested, starting with understanding the different types of insurance agents out there and choosing the right one for you. Do want

Todd Rich: 24:44

to make sure people understand that are listening. There's kind of two ways that you get, typically home and auto insurance. One is that you work with an independent agent and they'll go out and shop certain companies like. Safeco and travelers and some other smaller companies, and they'll get you a quote and say, Okay, I got you signed up for this one. Then there's the other side, where you kind of have what's called, kind of the captive market insurance, and these are agents that just work for one company. So farmers, all state, State Farm, where they're just going to look to have the consumer right in their own company. So what consumers need to do if they're getting non renewed or dropped, they need to explore all options. They need to go outside and look at independent or look at farmers or Allstate or whatever big company, and make those calls. And I we've talked to consumers, and they don't always understand that, but I hope I explained that, okay, if that makes sense.

Megan: 25:46

So the next tip is to look at your insurance policy if you haven't been dropped, because you might be under insured, not just for wildfire hazards, but for other hazards as well. Most,

Todd Rich: 25:59

most consumers don't have flood insurance. There's very few people in Northern Nevada that live in a flood plain, but you want to check on that, and you can also buy flood insurance if you think you may get flooded down the road. There's also earthquake insurance that's additional. So you want to look at and sit down with your broker, whoever, and say, explain this to me. So what happens if, if my water heater leaks and it's upstairs, or my washer and dryer leak, what happens and how much am I going to pay? So you got to do a little legwork, because these are big things, when they do happen in terms of fire, are you covered if there's smoke damage? So if there's a fire, maybe it's up in the hills, and you live close and there's enough smoke that gets in your house, is that company going to cover that, that smoke damage that we don't think about, even though the house didn't burn down, and make sure that that the consumer understands that, and then our role is Division of Insurance if, if that's in the coverage and the carrier is not paying, and that's when we get involved, and we'll go talk to the carrier and say, you know, you need to make good on this claim and make sure this consumers is paid in full. And

Megan: 27:12

that's a great lead in to Todd's next suggestion, which is, if you are experiencing issues with your insurance company, if they aren't paying a claim for coverage that you pay for, you can file a complaint with the Nevada Division of Insurance. Yes, they

Todd Rich: 27:27

can file a formal complaint. And that really helps us, because then we get a historical number of how many complaints on each issue, and then we'll go talk to carriers, and like I said, we have the regulatory stick to say, if you don't do this, then you're probably looking at a fine or something more punitive.

Megan: 27:44

So in closing, let's look to the future. We asked Todd to share some ideas that maybe they're kicking around at the Nevada Division of Insurance that would help address some of these insurance challenges. He says that they're taking a lot of inspiration from what folks are doing in other states.

Todd Rich: 28:04

There was a bill that was put forward in Idaho, and it would create a kind of Idaho based reinsurance program that would be funded by the state, that would help the carriers there get some relief in terms of the reinsurance costs. It also had a component that it would provide grants to homeowners. I think it was up to, like, $10,000 for mitigation So, and I think there's probably a lot of value that maybe the state could do something like this to help push mitigation so that overall, you know, the risk of wildfire goes down, and carriers would understand that and start writing differently and again, provide credits. But I think we have to do something. Christina, I know you live in California. California has what's called a fair plan, meaning it's kind of the insurer of last choice if you can't get coverage elsewhere. I know that that FAIR Plan is getting lots of action. I think last I heard, they're getting, like, 1000 applications a day, and I don't think it was designed for that. I know there's a fair plan in Washington and Oregon, and both those states have less than 500 covered homes. So what we're seeing in California is probably on the extreme, but you know, having a fair plan in Nevada might be helpful. So if there are homes that don't get covered, or maybe small businesses that the state based FAIR Plan could cover those, and the division could start that on our own. I think we would prefer the Nevada legislature to weigh in make sure it's done appropriately. That if we do that, we would probably have to assess carriers for the cost of that. And so there's that you know, that thought is, you know, should, should people in Las Vegas be paying for an issue that's only in Northern Nevada, although. Do think it will impact Southern Nevada as well, because rates are going to go up down there,

Christina: 30:05

you know. And I think that we're at an advantage in Nevada that, you know, we're seeing this happen in Oregon, Washington and the state of California already. And so you guys can kind of get ahead of the of the curve here a little bit. And so I think that's encouraging for homeowners here, that you guys are proactive about it now, as opposed to in, oh my god, the campfire happened.

Unknown: 30:32

Whoa, we

Christina: 30:33

just lost all these homes. Okay, this, okay. Now, the Dixie fire, now the Caldor fire, now the Tamarack fire, you know, and so there's just been a lot of hits to the California home market. And so I think that, you know, you guys have an opportunity right now to kind of jump ahead of this a little bit. So we appreciate your time.

Todd Rich: 30:55

So very happy to be part of this. Like I said, it's, it's probably the biggest issue that we're dealing with right now, Division of Insurance and Christina you, you said it wildfires. It's not simply a man land management issue or problem. It's an economic issue, and we all have to come together to address it and solve it. And I think we can, because, as I mentioned, when I learned 85% of fires are started by humans. So if we can shorten that number and do mitigation, I think we can, we can get our arms around it.

Megan: 31:35

Thank you for listening to the living with fire podcast. You can find more stories and resources online@livingwithfire.org the living with FIRE program is funded by the Bureau of Land Management, the Nevada Division of Forestry and the US Forest Service, and were managed by the University of Nevada, Reno extension. You