How to reduce household insurance premiums and forest fire risks

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Homeowners in the US have been given new guidelines to help them defend themselves against increasingly frequent wildfires and the associated rising insurance premiums.

The Insurance Institute for Business & Home Safety, a nonprofit research organization funded by insurers, announced that it has developed the first-ever standard that has been shown to reduce the risk of wildfire damage in a home. To earn the Wildfire Prepared Home designation, homeowners must meet a number of criteria — including removing combustibles like shrubs that are four feet five feet around their homes — and pass an annual inspection.

The guide is especially useful for homeowners in western US states who have been plagued by wildfires. The city of Paradise, California, 90% razed by the infamous 2018 inferno, immediately announced that all new construction would have to meet these standards.

“This is a critical part of our recovery,” said Kevin Phillips, Paradise City Manager. “We’re doing everything we can to show insurance companies that we mitigate risk and that we’re a community that you would return to and invest in.”

The state of California already has strict building codes for new homes in areas known to be fire prone, but many homes predate those standards and therefore don’t meet them. The steps to fulfilling the IBHS are even more difficult.

For many years, the IBHS has been conducting research for the insurance industry on how to protect homes and businesses from fire, including building test homes and setting them on fire in their lab. But Roy Wright, executive director of the institute, said homeowners across the West have also become hungry for that information in recent years.

“The catastrophic events in California in 2017 and 2018 changed this conversation about fire insurance,” he said. “Suddenly climate change
These California families come marching through the front door, wanting to know what they can do.”

IBHS said the designation was based on the latest scientific evidence and included a list of specific steps proven to reduce fire risk, such as shingling with a non-combustible material.

Widespread adoption of such standards would also be welcomed by the insurance industry. The industry lost 25 years of underwriting profits after the catastrophic fire seasons of 2017 and 2018, according to Milliman Inc, a risk assessment firm that works with insurers and is pushing for stricter building codes around fire. It has also increased rates in fire-prone areas and, in some cases, retreated altogether.

While there is currently no guarantee that meeting the IBHS standard will result in a reduction in insurance rates, new draft regulations from the California Bureau of Insurance include language indicating that insurance companies would need to offer discounts to homes that meet the standard.

Achieving higher fire safety standards could be costly and difficult, particularly for older homes, but Phillips said it’s the only way forward for cities like Paradise, where insurance premiums can now exceed $6,000 a year. “Even if it’s a bit more expensive upfront,” he said, “the long-term benefit will help make it the most affordable.”

Photo: Firefighters attempt to protect a home near Santa Claus Drive during the Caldor Fire near Meyers, California on August 31, 2021/Bloomberg

Copyright 2022 Bloomberg.

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