Agricultural and rural interests are closely watching the development of new insurance regulations aimed at stemming a tide of policy nonrenewals and cancellations that has been sweeping across regions considered to be at high risk for wildfires.
The new strategy reflects a compromise between the state and insurance providers, allowing the companies to raise premiums in exchange for covering a portion of the at-risk properties. While the eventual impacts to agriculture are uncertain at this early stage, the ambitious proposal offers hope that farms and ranches can retain some level of coverage to satisfy their loan providers.
Since 2017 — a devastating year for California's Wine Country — wildfires have grown more intense, have damaged more property and have led to greater insurance losses. Providers have responded by ramping up rates and pulling back on coverage. The crisis has forced the California FAIR Plan, acting as the state’s insurer of last resort, to balloon in size since 2019, with the number of residential policies expanding from about 150,000 to more than 400,000 today, and commercial policies growing from around 4,000 to more than 11,000. The value of property insured under the plan has hemorrhaged from $50 billion in 2018 to about $400 billion now.
“It's become a really hard financial pain point for farmers and ranchers,” said Peter Ansel, a senior policy advocate at the California Farm Bureau. “They're swept up into nonrenewals and there doesn't really seem to be any look at what's happening at the parcel level of where those policies are located.”
Ansel explained to Agri-Pulse that some farm bureau members have invested substantially in home hardening and creating defensible space around their properties and yet still lose coverage. One of those farmers serves as a cooperative extension advisor on wildfire risk mitigation at University of California Agriculture and Natural Resources. He lost his insurance policy without any discussion about the steps he had taken to lower his fire risk.
“There has to be a real change in the way insurers are pricing their policies in the state for anything to start to change,” said Ansel.
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The deal announced by Insurance Commissioner Ricardo Lara would allow insurers to incorporate wildfire catastrophe modeling into their rates, which would lead to higher premiums for policyholders. Lara said his strategy will help to modernize the marketplace and that his department will continue to scrutinize rate increases.
Peter Ansel, California Farm Bureau“With climate-driven megafires burning across the state, it is clear that relying on decades-old regulations only hurts our ability to prepare for the future,” said Lara in a statement.
Gov. Gavin Newsom has praised the commissioner’s efforts, saying the state is long overdue for such reforms.
The regulatory package would require insurance companies to maintain coverage for 85% of the market share within wildfire distressed areas. Lara hopes to reduce the number of policyholders in the FAIR Plan by giving priority to those property owners who take steps to mitigate risks.
“It's not going to result in people getting lower rates,” said Ansel, in describing Lara’s draft regulations. “But it will hopefully result in people getting access.”
He said the state needs to “bring insurers to the table” to start writing policies again and views the regulations as a critical first step in a years-long process.
“It was important we get something going to stop the bleeding,” he said, adding that insurers must be able to get a rate of return comparable to other states.
John Austel agrees. With 10 years of ranching in San Diego County and 36 years as an insurance broker, Austel has witnessed the crisis unfolding firsthand. The only insurance policies he handles lately are for the FAIR Plan, with premiums twice as high and the coverage less than previous policies.
To him, forward movement on regulations is better than no movement.
“Getting more competition is always better than having no competition,” he told Agri-Pulse. “So if [Lara] is getting other insurance companies into play, that's a positive aspect.”
The financial hit to consumers, however, will not be known until the state implements the regulations and insurers calculate premiums. It could lead to better coverage, but some pockets may experience higher premiums than the statewide average.
Austel understands the financial pain caused by the high upfront costs. The policy expense for his rural home, surrounded by mowed grass, has skyrocketed from $1,500 a year to $5,000. The situation is similar for the ranches he works with, where managed grazing around buildings and other structures creates natural barriers that reduce the intensity of wildfires. He blamed maps used by insurance underwriters for basing risk on zip codes rather than individual properties.
“Ranchers don't want to lose everything,” he said. “They are going to be taking proactive measures already around their own infrastructures.”
In his role as second vice president at the California Cattlemen’s Association, Austel will be closely watching the rollout of the new regulatory reforms.
Ansel hopes the flurry of activity will open a dialogue for granting a special distinction to agricultural lands when evaluating wildfire risks. He pointed out that CalFire stages personnel and equipment on those lands when combatting fires, knowing such fields are irrigated or grazed with little vegetation to burn and little risk to the department’s resources.
Until last month Ansel had sought to establish that distinction within Senate Bill 610. CalFire and the Newsom administration pitched the legislation to lawmakers in July to reform the way the state draws maps for fire hazards. Proponents argued it would have standardized fire mitigation requirements across state and local boundaries.
The farm bureau wanted to amend SB 610 to task the Office of the State Fire Marshal, when creating regulations, to consider the low wildfire propagation risks and the nonflammable characteristics of agricultural lands and water bodies. Ansel lamented that irrigation districts and rural municipal water utilities have also lost insurance policies — even when the property contains a single building next to a reservoir.
SB 610 died last month in the Assembly Appropriations Committee, after several groups, including the farm bureau, expressed concern over enacting sweeping and uncertain changes in a shortened time span.
Ansel has shifted his focus to the catastrophe modeling that insurers would soon deploy, where a special distinction for agricultural properties could lower their fire risk. He is also hoping to bump farms and ranches to the top of the priority list for policies shifting out of the FAIR Plan to the commercial marketplace. Such changes could come in the form of cleanup legislation for Lara’s regulations in the Legislature next session. Insurers would have a two-year window for complying with the Insurance Department’s new requirements, allowing time for lawmakers to step in with revisions.
For now, Ansel is finalizing the farm bureau’s formal comments on the proposal.
The Insurance Department continues to gather public comment and has set a hearing date of Sept. 17 to present the regulation and hear from stakeholders. Lara hopes to enact the reforms before January.
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