Addressing Wildfire Policy Concerns With Your Clients

To say that the designated fire season time of the year is limited to just the summer months wouldn’t be accurate. According to the U.S. Department of Agriculture, today’s wildfire “season” has unfortunately become an all-season, year-round event.

In 2020, due to extremely dry conditions and unusually warm temperatures across much of the country, the nation experienced significant climate anomalies. In fact, last year was the warmest year on record in the U.S. As a result, the nation had one of the most active wildfire seasons to date, burning nearly 10.3 million acres — the largest acreage consumed by fire in the U.S. since 2000 — and exceeding the 2000-2010 average by 51%, according to the National Oceanic and Atmosphere Administration.

As things heat up across the nation, your personal lines clients will likely be looking to you, their insurance professional, to help them better understand coverage issues as they relate to wildfires under their homeowners’ insurance policies. The following are common issues surrounding homeowners’ insurance and coverage for fire-related losses.

Homeowners’ insurance and wildfire insurance

As you’re aware, most all standard homeowners’ insurance policies provide coverage for fire damage to the insured dwelling and any attached structures. However, if your clients live in an area where there is a higher-than-normal risk for wildfires, they may need to purchase additional coverage, typically at an additional premium that is based on a number of factors such as where the home is located and the distance to a fire station or hydrant, to name just a few. Simply put, wildfire insurance is really just a homeowner’s policy, but it is designed to protect homes in high-risk fire locations.

Tip: Now’s a good time of the year to review policies with your homeowner clients who may be in high-risk areas and discuss the different types of coverages available to ensure they have enough protection to replace their home and personal property.

Structures not attached to the dwelling

Structures that aren’t attached to the main dwelling (e.g., a detached garage, pool house, fencing, gazebos, outdoor garden and storage shed), will have coverage under most standard homeowners’ policies in the “other structure” provision. However, your clients may not be aware that the typical amount of coverage provided for other structures is based on a percentage of their dwelling coverage. Every carrier is different. Therefore, it’s difficult to say what that specific percentage may be. However, most standard policies allow for 10% or 15% of the dwelling to cover other structures not attached to the home.  

Tip: Homeowners are always making improvements to their property and don’t always take the time to inform their insurance agent as to these changes. When writing a new homeowner’s policy or when reviewing existing policies, remind clients of the importance of contacting your agency when they have added any new structures to their property. Then, crunch the numbers to make sure their limits are where they need to be in the event of a fire loss. 

Protection for personal property

Coverage for personal property in a standard homeowner’s policy is also based on a percentage of the dwelling’s coverage. So, in the event of a fire, coverage for personal property will be limited to whatever the policy limit is on the home. This number will vary among carriers, typically ranging anywhere from 50% to 75% of the dwelling.   

Tip: If your homeowner clients have concerns as to how much coverage they have for personal property, advise them to take an inventory of their home’s contents and the estimated replacement cost of each item, and request that they email the list to your agency for safekeeping. Again, run the numbers to ensure they have the most appropriate limits.

Additional living expenses

Finally, it’s always a good idea to review coverage under their policy’s “loss of use” provision. Your clients may not be aware that in the event they are unable to live in their home due to a fire (or any other catastrophic event), their policy will help cover costs associated with being relocated to a hotel or motel, meals and other additional living expenses while their home is being rebuilt or repaired after a covered loss. The limit for this coverage is also a percentage of the dwelling coverage. Typically, the coverage limit for loss of use is about 20% to 30% of a home’s insured value.

Tip: While policies will differ, it’s important to let your clients know that loss of use involves more than just providing costs for additional living expenses. In fact, many policies also include coverage for expenses associated with fuel or mileage, clothing, pet boarding, storage units, and car rental and public transportation costs.

Last, it’s important to note that in certain states or other wildfire-prone areas, there may exist homeowners’ policy exclusions for wildfires, or homeowners may be denied coverage altogether. In these situations, it’s important to discuss options with your clients to see whether they may be eligible for coverage through a surplus lines carrier. In very high-risk areas or where there is a moratorium prohibiting insurers from offering coverage, there is always the Fair Access to Insurance Requirements Plan, otherwise known as FAIR. As a state-mandated program, FAIR provides insurance access to homeowners who are having difficulty securing coverage.

About FastrackCE

Need to complete your personal lines insurance continuing education credits this summer? FastrackCE can help you get all your life and health and property and casualty continuing education credits done in one place and at your convenience.

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