Stu Smith received an email from his insurance company last summer with some bad news: his insurance premiums more than quadrupled.
Smith is the co-owner of Smith Madrone, a wine company in the Sonoma Valley, California, where he has held wildfire insurance for more than 30 years. But now, the insurance company believes that Smith’s property is too risky to continue to provide services to customers at any price close to its long-term price. If Smith wants to renew his policy, he must pay more than US$55,000 in premiums each year, compared to only US$12,000 in the previous year.
The following week, as the LNU Lightning Complex fire began to spread in the mountains east of Sonoma County, Smith scrambled to find a new insurance company. It seems that no private insurance company is willing to issue an insurance policy for him, so at the last minute, he turned to a state-owned insurance plan that covered part of his property. The price is still several orders of magnitude higher than what he used to be used to: He now has to pay $46,000 for an insurance plan that covers only a small part of his previous plan.
A few weeks later, as the nearby LNU fire was still burning, Smith gave in and signed the state-run plan, but many of his neighbors in Sonoma Valley did not do so.Last year, hundreds of farmers in California found themselves forced to be uninsured, including ranchers along the Central Coast, nut growers and winery owners outside of San Diego Like smith In Sonoma and Napa Valley. No one knows exactly how many farmers have lost insurance, but it is clear that this trend has sent shock waves in the agricultural areas of California.
California insurance companies have been hit hard by wildfires — the industry’s losses in 2017 and 2018 exceeded the total profits of the past 25 years — and have begun to reduce thousands of customers, rendering wineries and ranches unworthy Find insurance for Liancheng’s property. Millions of dollars. The state has stepped in to provide short-term fire insurance as the final solution, but this crisis heralds a greater confrontation against the so-called “fire insurance.” Management retreat One of the most important granaries in this country.
California plays a vital role in the food economy, producing more than 80% of the country’s wine And more than 80% Fruits such as strawberries and raspberriesIf the lack of fire insurance helps these farmers go bankrupt, then other parts of the country may pay for the grocery store.The decline of agricultural areas like Napa will also have a knock-on effect on the service workers who support the agricultural economy, and Thousands of migrant workers People picking grapes during the harvest season.
Brent Burchet, director of the San Luis Obispo Farm Bureau on the central coast of the state, said he was not sure how long his members could hold on.
“I think it’s already serious, and then the idea that they can’t get insurance prompts them to say,’I have to make a decision,'” Burchett said. “If you are packing up and moving, I would say that the threat of fire is almost the most important.”
This insurance dilemma has been brewing for decades. After a series of wildfires and earthquakes in the 2000s, the largest private insurance companies have become more conservative when formulating new policies in fire-prone areas. However, it wasn’t until the historic fire seasons of 2017 and 2018 that regulators began to notice an increase in so-called “non-renewal”, and one of the private insurance companies refused to renew the insurance plans of existing customers.Estimated 400,000 residential customers Received a non-renewal notice In 2018 and 2019, the numbers soared More than 200% In the most vulnerable county in California. Thousands of commercial enterprises and farms have also been closed.
Unable to obtain insurance in the private market, thousands of families have turned to California’s Fair Access Insurance Requirement Program, called Fair, A state-run “insurer of last resort”, providing limited and expensive fire insurance. The plan was created after a series of bushfires in the 1960s to provide only the most basic coverage, so it excluded farmers’ agricultural buildings, tractors and other equipment, which could add up to hundreds of thousands of dollars.
When insurance began to reduce customers a few years ago, this gap in the national plan prevented many farmers from providing insurance options for most of their properties-which could be a death sentence for their businesses. Farms rely on bank loans to obtain the funds needed to expand their operations, but they cannot obtain bank loans without insurance. Many farmers are beginning to worry that the bank will cut off their business soon.
Later Lobbying A bill passed by California’s largest farmers’ trade association and the California State Assembly Early this month The FAIR program was expanded to cover farm structures, and Governor Gavin Newsom signed the program a few days later. (The Association of State Insurance Companies also supports the bill.) However, new insurance will not be available until the end of the year, which means that many farmers will have to be “naked.” As Smith said, experts in the fire believe this may be One of the worst seasons in history.
The worst case here is as bad as you can imagine: if another wildfire is like LNU Lightning Complex This summer, it attacked Smith’s Sonoma part. Not only would it destroy outbuildings and drip irrigation equipment, it would also pollute all the local grapes with smoke and make them unsellable. Smith can consider himself lucky. Because he joined the FAIR project, if a fire destroys his business, he can expect minimum compensation, but some of his property is actually still “naked.” For his neighbors, those who are completely uninsured, any form of fire damage can mean bankruptcy.
Even if farmers can live until next year, the insurance problem will not disappear anytime soon. The FAIR plan’s coverage limit is approximately US$4 million, and many wineries and ranches are worth much more than this. It also does not cover damage to crops (which is usually not covered by federal crop insurance). This may be painful for winery owners like Smith: the smoke from the wildfires of the previous season polluted many of the Napa and Sonoma vintages, rendering them unusable for wine.
In order to protect the long-term interests of California agriculture, the state government will have to persuade private insurance companies to provide insurance at their past price and scale, most likely to assure them that the owners will take steps to reduce the risk of wildfires. The state can also try to increase the risk of wildfires. Many rejected clients introduce the FAIR program, but this will create an extremely expensive risk pool that may prove to be unsustainable.
On the one hand, Smith is optimistic about allowing private insurance companies to return to the wine country market. He spent thousands of dollars clearing flammable forest vegetation and creating “defense spaces” to buffer fires. He said that if private insurance companies looked at his property instead of his zip code, they would definitely offer him a better deal.
Others in Wine Country are not too optimistic about the future of the industry.
Ryan Klobas, director of the Napa County Farm Bureau, said: “If you have been repeatedly hit by wildfires without insuring, then you are likely to go bankrupt.” Smith’s winery in Sonoma. Clobas estimates that in the past few years, approximately 85% of his 1,500 agricultural bureau members have received notices of non-renewal from insurance companies.
Clobass said that even if private insurance companies provide insurance again, it may be too expensive for many small businesses—the rates of the few wineries that did not lose insurance last year soared fourfold overnight. “How can you continue to fund the insurance policy when the rate has tripled or quadrupled?” he said. “It doesn’t make any sense. They basically just sit there waiting for something to happen, but [they] There are not enough resources to actually deal with it. “
To understand why Klobas is so worried, it helps to first consider why insurance companies abandon customers. If the insurance company pays more claims than the amount received from the premium, then the logical solution is to increase the premium to make up the difference. However, when an insurance company abandons thousands of customers, it says it cannot raise the price enough to make these customers profitable—in other words, their farms cannot be insured.
Rex Fraser, chairman of the California Personal Insurance Association, said in a statement to Grist: “No group works harder to understand fire risks and mitigation effects than insurance companies.” “I don’t know anyone can Credibly state that they understand how to stop the fire from destroying houses and businesses.”
Climate change caused by the burning of fossil fuels Has been extended The length of each fire season and its geographic scope mean that every year it is possible to bring new damage to unprepared places. If insurance companies continue to lose money, some companies may completely withdraw from parts of California. A similar thing happened in the Midwest almost a century ago, when the private flood insurance company abandoned the area after the Mississippi Flood in 1927.
Frazier pointed out that given the scale of California fire risks, simply increasing premiums may not be enough to protect insurance companies from going Proportion,” he said.
In the past two years, California has promulgated One year pause Insurance companies are prohibited from transporting customers in areas where severe fires occurred that year. This slowed down the relocation of residents in high-risk areas, but did not slow down the non-renewal of contracts in other areas, nor did it protect homeowners after the expiration of the ban. This interim solution simply postponed a kind of liquidation that many states will have to face: California must decide whether to continue issuing bans in the disaster zone or let the market go with the flow.
“On the one hand, we might say that people living in these wildfire risk areas should definitely have insurance. This is their basic ability to adapt to stay in place, so maybe the government should intervene in subsidies or require insurance companies to provide it. “Columbia University professor Lisa Dale (Lisa Dale) said that she studied the feasibility of retreating from the fire zone. “On the other hand, we can say that if the insurance company [believe] One area is too risky to be insured, then we should let the private market reflect this risk, [because] It provides incentives to guide us in the right direction. ”
In other parts of the country, the growing threat of sea level rise has sparked discussions about “organized retreats,” which are coordinated retreats from low-lying areas and other vulnerable areas. As residents find themselves unable to obtain adequate insurance, the insurance crisis may force California to engage in similar conversations. If growers like Smith start to fail, it will not be easy to replace them.