Climate change has the potential to drive Westerners from their homes in the upcoming years, not just by making insurance coverage unaffordable but also by intensifying deadly floods and wildfires.
Previously restricted to late summer and early fall, Nevada’s fire season now lasts almost the whole year, much like Idaho’s. Additionally, insurance firms in the state are removing coverage and raising premiums due to the skyrocketing home insurance payments after disastrous fires.
Compared to some other states, Nevada has mostly avoided extensive property damage from wildfires; but, in recent years, wildfires in the West have grown in size and volume close to urban centers.
About 20 miles south of Reno, in Davis Creek Regional Park, the Davis Fire in Nevada started in September. About 20,000 people had to be evacuated from residential areas and businesses as the wind-driven fire quickly spread across 5,824 acres of private, state, and federal property. In the end, the fire destroyed 22 outbuildings, 14 homes, and two commercial buildings.
In Nevada, wildfires are becoming more frequent in urbanized areas where prime development is emerging against fire-prone wilderness zones, as demonstrated by the devastating Davis Fire.
Western governors acknowledged the home insurance crisis in their states during Tuesday’s Western Governors Association summit at the Four Seasons in Las Vegas.
During a discussion on wildfire insurance for homes, Colorado Democratic Governor Jared Polis stated, “We know that across the West, changing climate has really created one of the most challenging home insurance markets that we’ve ever experienced.” In certain regions of our state, insurance companies are completely leaving the homeowners insurance market.
Because of wildfires, home insurance companies are hesitant to provide coverage.
Republican Governor Joe Lombardo of Nevada did not attend the panel, but the State of Nevada’s Division of Insurance reports that thousands of homes insurance policies had been canceled this year because of the possibility of wildfires, adding to the state’s already dire home insurance situation.
Nevada Insurance Commissioner Scott Kippert informed lawmakers a month before the Davis Fire started that 481 homes insurance policies were canceled or non-renewed in 2023 because of the risk of wildfire, an 82% increase from the 264 policies that were canceled or non-renewed the year before. Wildfire risk resulted in the denial of almost 5,000 homeowners insurance applications that year, a 104.8% increase over the 2,439 denials that year.
Due to the possibility of wildfires in 2024, insurers said earlier this year that they planned to cancel an additional almost 5,000 covers.
Some regions are being more severely impacted than others by Nevada’s house insurance firms’ withdrawal. Northern Nevada accounts for the great bulk of homeowner insurance applications that are denied.
According to the Nevada Division of Insurance, two out of 21 companies in Incline Village have ceased writing coverage for their residences this year. The number of enterprises offered at Stateline, on the Nevada side of picturesque Lake Tahoe, decreased from 18 to 14.
The majority of mortgage lenders demand that homeowners keep insurance. Thousands of Nevadans might have to reevaluate their housing choices if they are unable to obtain coverage.
Other economic forces are disrupted by non-insurance coverage.
According to Karen Collins, vice president of property and environment at the American Property Casualty Insurance Association, economic factors such as labor costs, inflation, and supply chain disruptions have also contributed to the insurance crisis by raising the cost of rebuilding homes damaged by natural disasters.
Collins stated during the panel on Tuesday that the property insurance industry in the United States is actually going through the most difficult market cycle in a generation.
According to Collins, the amount and scope of home insurance payouts do not match the funds that the companies have set aside for claim payments.
We can now compare this to a catastrophic drought in the West, where the same conditions have depleted water supplies. In an effort to protect our finite water supply, this has frequently resulted in limitations or other regulations. Collins used a picture of the Hoover Dam bathtub ring to illustrate his point. “Insurers have also had to make adjustments to manage, in some cases, the very limited capital they may have in a hard market cycle,” Collins said.
The Davis Fire, which was caused by a high-wind event and occurred in a heavily forested, expensive area, was the worst-case situation for insurers.
“These events are getting bigger and more expensive,” Collins stated. During high-wind events in Western states, the speed at which fire spreads is causing some of the most expensive and, naturally, deadly losses in history.
Governors on the panel Tuesday concurred that mechanical forest thinning and managed fires are the most immediate ways to reduce wildfire fuel in the West.
A bipartisan policy resolution to address wildfire and associated air quality challenges was passed by the Western Governors Association on Tuesday. The policy promotes stronger state-federal cooperation on smoke management planning and other measures to support the use of controlled fire where appropriate, and it calls for a higher use of prescribed fire.
Polis emphasized his state’s initiatives to deal with fugitive home insurance businesses throughout the panel.
An insurance plan of last resort, a quasi-state insurance plan for property owners who can demonstrate that they are unable to obtain insurance from a private company due to wildfire risk, is an option available to Colorado home and business owners who are unable to obtain adequate property insurance. This bill was passed by the state last year.
We need to find a way to cut those expenses. According to Polis, we have completed some work in Colorado. For locations where everyone has pulled out, we essentially created an insurer of last resort. People would not be in compliance with their mortgages otherwise.
These strategies, called FAIR plans, are available in more than half of the states and address high-risk areas when others won’t.
Although there isn’t an insurer of last resort in Nevada, the Nevada Division of Insurance intends to ask for a feasibility study on the potential structure of a Nevada FAIR Plan.
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