by April Corbin Girnus, Nevada Current
Insurance companies have profited from Nevadans and their homes for the last decade, but that isn’t stopping them from pulling coverage or hiking rates over concerns about the risk of wildfires, state lawmakers were told Wednesday.
Thousands of homeowners insurance policies are being canceled or not-renewed this year due to wildfire risk, according to the State of Nevada’s Division of Insurance, leaving administrators concerned about people’s abilities to secure adequate protection in the face of natural disaster.
In Nevada, home insurers have been profitable every year of the past decade, with profits on average ranging from 5 to 10% of written premiums, according Nevada Insurance Commissioner Scott Kipper, who appeared before the interim legislative committee on commerce and labor on Wednesday to discuss the issue and what the state might consider doing to address the growing problem.
Kipper highlighted one unnamed insurer that covers 584 Incline Village homes with a combined estimated value of approximately $1.4 billion. That company’s annual average profits are approximately $5 million to $10 million.
“In spite of these profits for homeowner insurance companies, the increases in national catastrophic losses, especially from western state wildfires, is causing them to reduce exposures in Nevada,” said Kipper.
Nationwide, natural disasters have resulted in an estimated $79.6 billion in insured property losses, he said, and nine of the 10 costliest wildfires have happened since 2017.
Kipper noted that earlier this summer State Farm announced it will no longer offer home insurance to new customers in California, citing high construction costs and “rapidly growing catastrophe exposure.”
That skittishness is industry-wide.
Karen Collins of the American Property Casualty Insurance Association referenced a report finding that nationwide in 2023 there were $21.6 billion in underwriting losses for personal lines, which includes homeowners and auto insurance.
Collins said the biggest factor in these market issues is the rise in exposure values and replacement costs — put more plainly, increasingly bigger and increasingly more homes being built in high-hazard areas at higher construction costs.
In Nevada, when homeowners cannot get or keep coverage through a carrier that is licensed and regulated by the state, they can turn to what’s known as a surplus-lines or non-admitted carrier, which typically charge significantly higher premiums and are subject to far less oversight by state regulators.
Last year, 2,527 homes in Nevada were insured by non-admitted carriers. That number will likely rise.
The Nevada Division of Insurance found that, in 2023, 481 homeowners insurance policies were canceled or non-renewed due to wildfire risk — a 82% increase compared to the previous year, when 264 were. Similarly, in 2023, 4,994 applications for homeowners insurance were declined due to wildfire risk — a 104.8% increase over the previous year, when 2,439 were declined.
According to Kipper, insurers this year have notified DOI of their intent to cancel 4,892 policies due to wildfire risk.
Not surprisingly, the vast majority — 4,731 — are in Northern Nevada. This year, Incline Village has seen two of 21 companies stop writing policies for their homes, while in Stateline the number of available companies has dropped from 18 to 14.
State administrators recently held a town hall in Incline Village to hear from property owners. They have also been studying how other states have attempted to address their similar issues.
“We have a pretty splendid history of not having many wildfire challenges,” said Kipper. “But the potential and location is right across the street from areas that have experienced, even today, significant wildfire activity. It’s enough to make the industry just a little nervous. And when they get nervous they manage risk.”
The issue is not limited to the Lake Tahoe area, which accounts for about one-third of policy cancellations in Northern Nevada this year, according to the Division of Insurance. Approximately 1,900 home insurance policies in Reno, Sparks and Verdi are being canceled this year.
Kipper said the issue is “extremely concerning” to both residents and state officials alike but emphasized there is “no easy or complete” fix.
One thing being considered is changing regulations to expand the division’s oversight over the predictive models used by insurance companies, or to require companies to consider the use of the state’s wildfire mitigation incentive program.
Administrators would also like to explore the possibility of creating what’s known as a FAIR plan — an insurance of last resort for homeowners who cannot reasonably obtain coverage through an admitted carrier. Numerous states, including California, offer such plans. The Nevada Division of Insurance plans to request a feasibility study on what a Nevada FAIR Plan might look like.
Another possibility, which could work in coordination with a Nevada FAIR plan or independently, would be to launch an in-state or multistate reinsurance program that protects insurers from high claims
Donna Zanetti, an attorney at Leach Kern Gruchow Anderson Song, in public comment said lawmakers should consider amending NRS to allow HOAs to secure “bare walls coverage,” which covers less than what is currently required, and allow HOAs to charge the cost of repairs homeowners who negligently and carelessly damage units.
Zanetti told lawmakers that one HOA, which she didn’t name, recently went from paying $115,000 for insurance to being denied renewal.
“The best policy they could get was $750,000 with a $250,000 deductible,” she said, adding, “$250,000 is self insurance for all but a catastrophic loss.”
The HOA was forced to do a special assessment of $4,600 per unit.
“This has been a crisis for many associations throughout the state,” said Zanetti, “(with) the most vulnerable being condos and townhomes because that’s what first-time buyers can afford.”
While the state must review and approve homeowner insurance policies for single-family homes, it has much less oversight over commercial insurance policies, which include policies covering condos and townhome communities.
“Because commercial policies are so unique and tailored to the specific risk, they have generally been excluded from statutory regulation,” said Adam Plain, insurance regulation liaison with the Nevada Division of Insurance, when asked about the different levels of regulation. “Commercial policies, commercial buyers are thought to be sophisticated enough to have their own best interests in mind and the state does not need to have that statutory oversight.”
The interim legislative committee on commerce and labor took no action during its meeting Wednesday, but related bill draft requests may be proposed and considered at a future meeting.
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