Burning near the western edge of Yosemite National Park, the Ferguson forest fire has burned tens of thousands of acres, injured several firefighters and forced the evacuation of residents in the area. Wildfires are also forcing evacuations in Southern Oregon.
In the wake of a wildfire in California that shows few signs of slowing down, homeowners are reminded that there is added risk with owning property in an area where such fires are commonplace.
With that risk comes the need for proper insurance coverage to protect your home and valuables, including reconstruction costs.
In 2017, more than 8,000 homes were destroyed by wildfires, according to the National Fire Protection Association. The cost of reconstruction will vary depending on available resources, materials, skilled labor and the number of properties needing work. The average build price in 2015 was $103 per square foot, according to the National Association of Home Builders. If a home is 2,100 square feet, the estimated cost would be $216,300 to build.
As wildfires spread, homeowners can take steps to help decrease their risk of wildfire damage and should turn their attention to their insurance policies to ensure they have proper coverage.
Cataloging valuables and taking preventative steps are important
There are some steps that homeowners should take even before an insurance policy is selected, said Ian Hanson, Underwriting Director, Personal Insurance, Burns & Wilcox, San Francisco, California. At the top of the list is cataloging valuable items within the property.
“You’ll want to take photos of your items and put down as much information about them as you can so you have a running list,” Hanson said.
A second step is to consider particularly valuable items that potentially will not be covered elsewhere. For example, fine arts and antiques of a high value might require a Personal Articles Floater policy to provide the proper amount of coverage if a wildfire destroys them. Once again, cataloging such items is critical.
Your property, structures and personal items may be underinsured, Hanson said. So homeowners should work with their broker or agent to quote policies and update property details every one to three years.
Homeowners should also take preventative steps to help decrease the chance of a fire impacting their home or cottage, said Jon Kovach, President, Afirm, a leading provider of audits, loss control inspections and risk services.
Creating a distance of at least 30 feet from your structure to combustible materials such as brush, trees or shrubbery can help, Kovach said. Identifying pinch points on your property that curtail firefighting activities can help create access points if a fire was to occur on your property.
“You also want to make sure you have fire suppression systems and activities built in,” Kovach said. “It’s something you need to engineer inside your home ahead of time but having access externally is good, too.
“When it comes to fire protection, you start outside with items like your roof and windows, and work your way inside to protecting your valuables. Putting items in concrete foundations and building fire protective rooms is advisable.”
Home policy coverage options
On average, more than 100,000 wildfires clear between 4 million and 5 million acres of land in the U.S. every year, according to National Geographic. In Canada, over 8,000 fires occur each year, burning an average of over 5.2 million acres, according to the country’s National Forestry Database.
Wildfires can easily – and quickly – destroy homes, even spreading to nearby dwellings that are not considered high risk on their own. For homeowners who could be affected, having the right insurance matters.
Four types of coverage options are generally available to homeowners with property that could be threatened by a wildfire or other natural disaster, said Hanson. These policies come with an extra cost on top of your Homeowners policy, but provide a more comprehensive level of coverage.
The first, and most common, is Actual Cash Value, which does not allow you to replace what you have lost, but rather only compensates you for the value of a home at a past date, often when it was constructed.
The second type is Replacement Cost, which provides homeowners with a payment equal to that required to replace lost items in the loss settlement of their claim. This is typically a better policy as it does not include past expenses or costs as part of the equation and will provide the necessary money to replace a home and any contents also covered.
The third type is an Extended Replacement Cost. This covers the costs required to build your home and cover its contents almost exactly as it was before with additional coverage above the dwelling limits up to a specified dollar amount.
The final option is Guaranteed Replacement Cost. This covers the full cost to repair or replace the damaged or destroyed home for a covered peril regardless of the dwelling limits.
Many insurance carriers may not offer Extended Replacement Costs or Guaranteed Replacement Costs depending on the risk profile of the insured, Hanson said. A Replacement Cost policy may also cost up to 20 percent more than an Actual Cash Value policy, which can equate to several hundred, or even a few thousand, additional dollars depending on the assessed value of the home. Selecting the right option is important with inflation for many raw materials and other supplies rising.
An insured’s risk profile for wildfire is not only determined by a history of wildfires or the location – whether it is a high elevation or a remote area – but also the proximity to a water source or responding fire department, Hanson said.
Based on these characteristics, a home is given a score from 1-10 for its protection class. “The higher the score, the higher the protection class is assigned, and thus the higher cost of insurance and more difficult it may be to secure,” Hanson said.
Upgrades made to the home, its age and other factors will also impact the cost of policies and availability of those policies, he added.
Most homeowners policies include Loss of Use coverage that will pay for many additional living expenses, which are defined as any necessary expenses that exceed what a homeowner would normally spend, said Hanson. This can include the cost of food, hotels, gas for transportation to and from work and other costs as defined by the policy while your home is being repaired or rebuilt. However, property owners should consider additional coverage beyond a homeowners policy.
When the time comes to rebuild, low unemployment rates may make it difficult to find the labor needed for new construction, reconstruction or major projects. This was true in the months following Hurricane Harvey last fall. With the lack of labor, Loss of Use coverage may be even more important given there may be a delay to a home’s reconstruction.
As with any coverage need, an insurance broker or agent must be consulted. Click here to forward this article to your insurance broker or agent to ask if you need this coverage, or share this with clients to start the conversation and ensure proper protection.
This information was provided by Burns & Wilcox, North America’s leading wholesale insurance broker and underwriting manager. Burns & Wilcox works exclusively with retail insurance brokers and agents to assist clients like you with their specialty insurance needs. Ask your insurance broker or agent to review your Homeowners Insurance policy and ensure you have proper protection.