The Three California Perils

California is often thought of as earthquake country, but it is a three-peril state when it comes to natural catastrophes; it also has significant exposure to wildfires and floods. By comparison, as of May, the CDI had estimated the November 2018 wildfires caused insured losses of over $12 billion as of April 2019, an order of magnitude higher than losses expected from Ridgecrest.

Fortunately, wildfire is typically covered by insurance. However, after the major fires of the last two years, carriers may be restricting exposure via nonrenewals and price increases.

See what the authors had to say about the recent Ridgecrest Earthquake

This forces homeowners to purchase coverage through alternative and often more expensive options like the California Fair Access to Insurance Requirements Plan or the surplus lines market, the latter of which has recently experienced significant growth. While insurers in California are continuing to cover wildfire losses, and a dramatic reduction in wildfire coverage may not be imminent, insurers have undoubtedly become more cautious with the risk.

Floods, by contrast, similar to earthquakes, are not covered in a standard homeowners policy. Although California is not known for flood risk, it has the potential for devastating inland floods, and could experience a flood of similar magnitude to a major earthquake.

In 1862, floods devastated the West Coast, by some estimates destroying over 25 percent of California’s taxable real estate. Furthermore, research on weather “whiplash” (by Swain, et al. and reported by Vox) on the impacts of climate change in California indicates that the risk of a similar flooding event will be more than three times as likely by the end of the 21st century, compared to what it was in preindustrial times.