PAGE 3 To understand what’s at stake, it’s important to note how wildfire disasters compare with other catastrophe perils. First, wildfire damage is almost universally insured, as fire loss is covered under most private homeowners policies for (1) direct damage to buildings and contents by covered perils, (2) additional living expenses (ALE) an insured incurs while the damaged dwelling is uninhabitable, and (3) the “fair rental value” of a part of an insured residence that is normally rented but rendered uninhabitable by insured damage. Dwelling property coverage may be more restricted under state “Fair Access to Insurance Requirements” (FAIR) plans, which are insurers of last resort in some states for chronic perils. In some areas of California, the state’s FAIR plan is the only source of dwelling fire insurance for homeowners who cannot purchase it in normal markets. California FAIR plan dwelling coverage is limited to loss by fire, lightning, internal explosion, and smoke. Coverage for ALE and fair rental value is limited to 10% of the dwelling property limit, with an option to increase the coverage to 20% of the limit. Coverage for vandalism and malicious mischief can be added; coverage for other property perils must be acquired through “Difference in Conditions” policies available from private insurers. In this respect, wildfire contrasts with floods and earth movement, for which many exposed homes are not insured at all. Moreover, most of the residential flood insurance that is in place is insured by the National Flood Insurance Program (NFIP), which provides no coverage for additional living expenses (ALE). Coverage for ALE and fair rental value is available for earthquake damage under policies provided by the California Earthquake Authority, but the coverages are optional. In California and elsewhere, observers believe that take-up rates for residential earthquake coverage fall well below what is needed. Under homeowners insurance, wildfire exposure is similar to the exposure to wind and hail damage, the biggest source of homeowners property loss in most states, in that there is coverage for both physical damage and ALE. One could say, however, that compared to wind and hail disasters, wildfire disasters combine the worst of two worlds — the intense devastation of a tornado or convective storm with the widespread damage of a hurricane. This combination puts intense pressure on insureds and insurers. Wildfires Continued Insights for Your Industry PROTECTING YOUR PROPERTY E13-1026 888.321.5200 | ai-mbc.com Sheila E. Salvatore, Editor | Editor@AdjustersInternational.com Copyright © 2022 Adjusters International, Ltd. All Rights Reserved. Insights for Your Industry® is published as a public service by Adjusters International, Ltd. It is provided for general information and is not intended to replace professional insurance, legal and/or financial advice for specific cases.
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