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Ongoing CA drought leads insurance companies to tighten up ship

California readers are well aware of the ongoing drought in this state, and the impact of the ongoing drought on surface water and groundwater quality, as well as land subsidence. The drought is now in its fifth severe year, and California has been in a state of emergency for over two years. The effects on the environment are only one aspect of the drought, though.

There have also been effects on homeowners, who are facing increased costs for homeowners’ insurance, and even sometimes termination of coverage, due to the increased risk of wildfires. The termination of homeowner’s policies is part of “adjusting the books,” which is an industry-wide practice aimed at limiting an insurance company’s risk exposure. 

Adjusting the books has become a more precise calculation in recent year as the industry has improved the tools it uses to assess risk. The reality is that insurance companies are in business, and like any business they are keen to limit their exposure to any risk.  Because the general public does not have access to the processes and calculations insurance companies use when assessing risk and making decisions about policy renewal, cynicism abounds around these decisions.

In looking at the problem, both individuals in both the private and public areas of the insurance industry say that termination of coverage is not widespread enough to warrant major concern. There are still plenty of options out there for coverage, they say, including the California Fair Plan Association, which is an industry-wide association providing insurance as a last resort.   

That being said, it is still important for homeowner’s to understand their rights when it comes to nonrenewal and cancellation. We’ll look at this issue in our next post. 

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