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New: National Fire Insurance Program

For when people can no longer get commercial fire insurance.

by Eric Holdeman / January 3, 2020

See below for my IAEM Bulletin Disaster Zone Column.  My basic premise is that citizens will demand government action to make up for their inability to get commercially available home fire insurance — based on where they live.

New: National Fire Insurance Program (NFIP), December 2019

It is not here yet, but I’m predicting a new NFIP will be launched in the future because — it is what we do as a nation.

As emergency managers, when we hear "NFIP," we think about the national program that supports people who live with flood risks, so they can purchase government-backed flood insurance — not offered by private insurance companies, and at a premium that is subsidized by other taxpayers.

I am envisioning a day, in the not too distant future, where there might be a National FIRE Insurance Program (NFIP) that subsidizes the insurance risks of people with properties threatened by the wildland fire interface threat we have seen playing out in California and other states in recent years.

One only need to look at what has happened in states with hazards that can cause tremendous property losses. Look at both Florida and California. Hurricane damages and insurance company losses in Florida caused private sector insurance companies to stop offering hurricane insurance. In California it is the earthquake hazard and previous property losses that caused the private sector insurance industry to back out of that state and stop providing earthquake insurance riders.

In both of the above states, the state government has stepped in with government-backed alternatives. Will the same thing eventually happen with fire insurance? I think so!

Already in California there have been many property owners who have not had their fire insurance renewed because of insurance companies backing away from higher risk properties. Generally, insurance companies know how to cost their policies based on actual losses endured. The challenge of climate induced changing weather patterns is that past losses may not be indicative of potential losses in the future. So, they are hedging their bets and withdrawing from some market areas with more risk.

In the individual and anecdotal circumstances, I have become aware of, property owners have been able to find other private insurers from whom to purchase fire insurance. However, as losses mount and frequency of major fires increases, the ability to find affordable insurance coverage or any coverage at all may prove challenging.

Name the No. 1 state for earthquake risks and people will say California. But then, Washington state is second on the list of states for earthquake risks — and there have been insurance companies that have cancelled offering earthquake coverage there in addition to California.

California is in the news today for wildland interface fires, but all the western states have the risk and there have been some significant housing losses in the past in places like Colorado, Arizona, Washington. Even locations way to our north, like the province of Alberta, the city of Fort McMurray was surrounded by fire with 88,000 people being evacuated.

At the most recent National Emergency Management Association (NEMA) Conference, I recorded this statement from one speaker, “California is a bellwether state for wildland fire. We will begin to see these types of impacts in other states.” I guess you would call that extreme fire behavior and the interface of fire and people’s homes.

When it comes time to establish blame, in California they are looking at their electrical utilities to point the finger at. Downed power poles and exploding transformers have sparked fires during their wind events. What is the real cause of these fires?

First and foremost, the finger of blame should start with local government. This is where zoning and building codes reside. Florida lets people continue to build near the water’s edge and in the Western governments are letting developers and builders continue to expand housing developments on the edge of forests and other areas prone to wildfire. To add fuel to the fire, they want the homes close to the wooded areas to provide a “natural setting” all the while building new homes on postage stamp lots with only a few feet between buildings.

As a nation, we don’t respond to threats until they are staring us in the face, or we have suffered the consequences of a disaster. Even then, some events are discounted as Black Swan events that only occur “once in a lifetime,” if then.

To finish, I’ll relate one story that summarizes much of the above. I contacted a power company, not in California, about what contingency plans they might have for wildfires and how they might react to the situations like we’ve seen in California. The person I spoke to said, “We currently don’t have any contingency plans for pre-emptively shutting down power and we have not experienced the types of conditions or losses that are being observed in California.”

It won’t be just California. There will be calls for a National Fire Insurance Program as losses mount and fire premiums rise and insurance becomes harder to find.


by Eric E. Holdeman, Senior Fellow, Emergency Management magazine


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