As wildfire risk grows across the west, insurance experts fear economic turmoil

The number of homes at risk for wildfire damage in Washington is expected to grow by almost 30% by the year 2053, according to a report released this week by First Street Foundation, a nonprofit that researches climate change.

Data in the report shows Chelan County is one of 20 counties in the United States projected to see the highest increase in annual structure damage over the next 30 years. As natural disaster-caused destruction rates soar across the state and country, millions of properties face the risk of rising insurance rates and canceled insurance plans.

Spokane Fire Chief Brian Schaeffer said fire property damage risk gets higher the further away you travel from an urban area in Washington. Community insurance ratings are measured on a scale between 1 and 10 and are handed down by the Washington Surveying & Rating Bureau. Most cities, Schaeffer said, fall somewhere around 2 or 3 right now.

That number looks much higher in rural regions of the state, including many places in Eastern Washington – zones scientists have named “wildland urban interfaces.” Wildland urban interfaces are areas where a human-built environment meets undeveloped land, and they are the places most in danger of catastrophic fires.

“Areas where there isn’t career fire protection, there aren’t staffed stations or there’s no water supply – the insurance number will go up,” Schaeffer said.

First Street created a free, publicly available search database online called riskfactor.com where people can enter a ZIP code and see information related to the climate risks faced by properties in that ZIP code region. For instance, a search of the ZIP code “99201” produced results showing that nearly 2,000 Spokane properties face more than a 26% chance of being severely affected by a flood over the next 30 years. Properties in the city are subject to “moderate” risks from fires and heat and “minimal” risks from wind, according to the online search tool.

‘Property values will deflate’

Nearly 5 million properties in the Western United States could see higher insurance rates or claim nonrenewals due to wildfire danger alone, according to the First Street report. Another 27 million properties could face insurance struggles due to high-risk coastal wind zones.

Right now, an average of about 17,000 buildings is expected to be destroyed annually by environmental disasters, the report found. By the year 2053, an average of 34,000 structures is expected to burn down due to wildfires each year.

The nonprofit warned in a description of its 34-page report that natural disasters could create a housing bubble. This could lead to people skipping out on property insurance altogether if they can’t afford it. In some cases, property values have dropped below the amount of financing buyers took out from the start, the report found.

“Without the ability to insure properties in high risk areas with relatively affordable policies, homeowners will not be able to afford the cost of ownership associated with homes in those areas and property values will deflate,” reads the report.

Between 2018 and 2021, wildfires in the United States cost more than $79.8 billion in losses, according to the National Oceanic and Atmospheric Administration. Between 2012 and 2016, on the other hand, losses totaled a fraction of that at about $8 billion.

‘Type and level of catastrophes’

Every state grappling with climate-driven insurance crises faces a unique set of challenges, said Nicole Ganley, spokesperson for the Property Casualty Insurers Association of America’s West Region office.

“I think that Florida and California have two distinct problems that are both very different from each other,” Ganley said. “Florida has had very serious lawsuit abuse problems that have driven costs way up. California has had a different unique problem, that is their regulatory structure is not flexible enough to adapt to climate change and increasing inflation.”

Washington does not face either of those problems right now, Ganley said. But the Evergreen State and the other 49 all have a shared problem of rising inflation.

“The cost of building construction materials, the cost of labor – those are all up,” Ganley said. “The cost of housing has gone up. That’s part of a homeowner’s insurance claim.”

Property insurance rates in a state are based on property losses specific to that state, Ganley said. So Washington residents won’t pay more for home insurance due to natural disasters in Florida.

Colorado, for instance, sees higher rates due to hail damage and, in the past couple years, wildfire damage.

Officials with the state Insurance Commissioner’s office say Washington’s in a better spot than California and Colorado – for now.

“I’m not saying we couldn’t become them at some point,” David Forte, senior property and casualty policy advisor for the Office of the Insurance Commissioner, said in a phone interview. “Depending on what type and level of catastrophes we have, like recently. But the insurance industry is treating Washington state a little differently.”

Insurance Commissioner’s Office spokesperson Aaron VanTuyl said the insurance risks associated with wildfires and other natural disasters are a “major concern.”

“We haven’t seen that happening here to such a level,” VanTuyl said. “It’s certainly something we’re keeping an eye on for down the road.”

When nonrenewals happen and property owners can’t find another insurance carrier, they must turn to Washington’s FAIR Plan, a state plan-of-last-resort that offers bare-bones property insurance coverage. At the beginning of September, about 100 people were enrolled in the state’s FAIR plan. That number was in the hundreds of thousands for Colorado.

One restaurant owner in Yakima County said her insurance policy on the Washington FAIR plan cost her $50,000 in the past year, the Seattle Times reported.

Fortee said the FAIR plan’s “very basic” risk pool is designed to take on properties where somebody tried to go find private insurance and came up empty-handed. The plan is designed for short-term relief.

In order to assess Washington’s property insurance health, the state looks to the number of people enrolled the FAIR plan at any given time. The discrepancy between Washington’s numbers and those of other states leads state officials to believe things here are not currently as dire as they are for some other states.

The FAIR plan does not provide coverage for vacation homes and seasonal properties, so some of those who lost structures in the Gray and Oregon Road fires last month were not eligible for the state plan.

‘Understand the fine print’

The state Insurance Commissioner issued an emergency order for Washington between Aug. 19 and Oct. 17 in the wake of the Gray and Oregon Road fires that burned hundreds of homes and killed two people in Spokane County.

While in effect, the order prohibits property insurance companies from canceling insurance coverage for people who didn’t pay their premiums on time. The order also required companies to waive late fees and reinstatement fees.

“The thinking behind that was mail had likely been disrupted,” Forte said. “Not everyone communicates with their insurance company electronically. We wanted to make sure displaced residents have time to correct their mail transfers – not get caught unaware of a bill that got lost in transit.”

The emergency order also required that property insurance companies who intend to cancel coverage of a home after a term has ended must provide the customer with 120 day’s notice – more than the 45 days usually mandated by the law.

The projected Oct. 17 end date of the insurance emergency order might get extended, Forte said, adding that the decision may depend on Gov. Jay Inslee’s declarations.

Insurance customers who believe their providers are breaking the emergency order or state law are encouraged to call the state insurance commission at (800) 562-6900 between 8 a.m. and 5 p.m.

Those who have not already notified their insurance companies about any wildfire damage are urged to do so quickly. Once that’s done, the insurance commission strongly recommends that people keep and save a paper and email trail of every single interaction they have with their insurance provider related to a claim.

“It’s our recommendation that folks begin a claim diary,” Forte said. “Actually get a notebook, if they can, and start writing everything down – from the moment that they had to leave their home or found out that the home was damaged – all of their interactions with contractors and insurance companies. The process takes a long time. It’s good to have a document you can refer back to about times, dates, and conversations.”

All insurance customers should have or immediately request a copy of their insurance policy. In each policy, the section titled “Duties After Loss” lays out what both the customer and the company must do in accordance with the contract.

“It’s important for people who have had a fire loss to know what their responsibilities are as well,” Forte said. “So they don’t accidentally do something wrong that could hurt their future claim. If they don’t understand it, they should reach out to an insurance professional who can help them.”

One concern the state has about the aftermath of the fires in Spokane County surrounds what Forte described as “predatory contractors.” When folks are hiring a contractor – or attorney or any other credentialed person to help them assess damage – they need to make sure they are dealing with a legitimate, certified professional. Not a phony trying to rob them of money or property.

“Your own construction market might not be able to handle all the homes that have been damaged,” Forte said. “Quite often, in these disasters, out-of-state contractors or far-away-in-the-state contractors will come into your area.”

If anybody claiming to be from an insurance company pressures somebody impacted by the fire to sign any documents, they should push back and make sure that they understand every single component of a repair contract, Forte said.

“They need to be very careful not to sign away their policy rights – which happens,” he said. “There are clauses in repair contracts that provide the contractor with all of the benefits of the policy. That’s terrible for the insured. We need to try to educate them to make sure they’re reading their contracts and that they understand the fine print.”

Editor’s note: This story was changed on Sept. 25, 2023 to correct the financial damages caused by wildfires between 2012 to 2016.