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 Nestled against the mountains and abutting the Cleveland National
Forest, the area has abundant wildlife and access to nature, yet is
just a 20 minute drive from larger Orange County communities.
But the things that make Modjeska appealing have also made homes
there and in other wildfire-prone parts of California increasingly
difficult to insure.
In the last decade, major wildfires in California - and losses in
the billions of dollars - have led some big insurance companies to
stop writing homeowners policies for many of the nearly 2 million
households that are considered at high risk of fire. Allstate Corp,
for instance, in 2007 stopped writing new homeowners policies in the
Golden State altogether. Others, like Farmers Insurance and State
Farm, have become more discriminating about the areas they will
insure homes.
Californians who can't find insurance in the traditional market can
purchase limited fire coverage from a state-established consortium
of insurance companies.
 Yet data shows that many homeowners who have been denied coverage by
standard insurers are not flocking to the state plan, which is both
more costly and far less comprehensive than traditional homeowners'
policies. Rather, they are increasingly signing up for specialty
policies provided by companies best known for insuring unusual risks
such as major construction projects, kidnapping or rare art
collections. Such policies are still expensive, but offer more
coverage than the state plan.
Bonnie Smith, a landscape designer who has lived in Modjeska Canyon
since 1981, said the availability of traditional homeowners
insurance plans tightened after a 2007 fire destroyed several homes
in the canyon.
"People that move in here have a heck of a time getting insurance,"
she said.
Allstate canceled Smith's $1400-a-year homeowners policy in 2012,
and Smith considers herself lucky that she was able to find a $2100
policy with Lexington Insurance, the specialty insurance arm of AIG.
And she isn't the only one. Thousands of Californians in hilly,
forested areas have also signed up for such policies in recent years
with companies like Lexington, Lloyd's of London[SOLYD.UL],
Nationwide Mutual Insurance Co [NMUIC.UL] unit Scottsdale Insurance
Company and Foremost, a division of Zurich Insurance Group AG.
So-called surplus line insurers wrote 23,120 homeowners policies in
California in 2014, a 91 percent increase from the 12,097 written
just two years earlier, according to the Surplus Line Association of
California.
"In the past two years it's really taken off, and most of that is
really driven by the fires," said Andy Fletcher, an insurance broker
with Scottish American in Sacramento who connects insurance agents
with surplus line homeowners policies.
Fletcher writes about 2500 policies a year, he said, and expects
that to climb above 3000 next year after the latest wildfires in
Northern California, which destroyed hundreds of homes. About 80
percent of the policies he writes are for homes in high fire areas,
he said, adding that they probably cost about twice as much as a
standard policy.
Surplus line insurance is meant for higher risks, and insurance
brokers must show that they cannot get coverage for their clients in
the standard market before they can get a specialty policy.
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The companies that offer those policies must be approved by the
California Department of Insurance, but their rates are not
regulated like those of traditional insurers.
"I have some concerns that the main line insurers are justifying
their exit from some areas by the fact that there is a surplus lines
market," said Erin Ryan, principal consultant for the state's Senate
Insurance Committee. "If we see substantial growth in the surplus
lines market then there is something wrong. It's meant to be for
unusual situations and unusual risk. Not for your basic homeowners
insurance."
Part of the attraction of specialty policies is they offer more
coverage than the state-sponsored program, known as the California
FAIR plan. The FAIR plan offers a basic plan that covers fire and
will only insure up to $1.5 million for a structure and its
contents. That means people have to look elsewhere for other
coverage that would normally be included in a standard homeowner's
policy, such as liability for accidents or injury.
The number of policies under the FAIR plan has been flat for the
last two years. And nearly 80 percent of the FAIR plan's 126,000
policies are in urban areas with no wildfire exposure, according to
Anneliese Jivan, president of FAIR.
"I'm pretty certain that some of the policies are being picked up by
the non-admitted carriers," Jivan said. "They are not coming to us."
Randy Ballinger, a retiree who owns a 900-square-foot A-frame house
in the Southern California mountain community of Running Springs,
said he didn't even consider the FAIR plan because he heard it was
expensive. So when Farmers rejected him, he ended up with a
$1200-a-year policy with Foremost.
Ballinger pays slightly less to insure a far larger three-bedroom
rental property in a lower-risk part of town with Farmers.
Traditional insurers acknowledge that they are reluctant to insure
in some fire-prone areas. “As much of the industry has done, we
continue to evaluate wildfire exposure and risk,” said Trent Frager,
a spokesman for Farmers Insurance.
For property owners, that can mean fewer choices and higher prices.
"It's killer," Ballinger said. "I just want to ignore how much I'm
paying and be glad I have it."
(Reporting by Nichola Groom; Additional reporting by Tariro Mzezewa
in New York, Carolyn Cohn in London and Richa Naidu in Bangalore;
Editing by Sue Horton)
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