Malibu residents increasingly rely on pricey insurance as wildfire rages

Even before the Franklin Fire grew to more than 4,000 acres and compelled famous residents like Cher and Dick Van Dyke to evacuate, Malibu faced a severe home insurance crisis, exacerbated by California's rising wildfire risk. 

Coverage was getting harder to find, prices were rising and more homeowners were turning to a less-regulated form of insurance known as "non-admitted" or "surplus." The average surplus premium to protect property this year was roughly $46,000 in the wealthy enclave, where real estate can run into the tens of millions of dollars. The situation is only likely to worsen as climate change ups the odds of destructive wildfires.

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Major carriers have "stepped out of the market, making it difficult for consumers" in the area, said Nancy Madwin, general manager of Coast to Canyon Insurance Services, a brokerage with an office in Malibu.

In 2018, the Woolsey Fire destroyed hundreds of homes in the vicinity. But even after that, Madwin said, "there were more choices then there are now" for home insurance.

Seven out of the 12 biggest home insurers have limited their coverage in California over the past two years; increased fire risk driven by climate change is part of the reason. In March, State Farm, California's largest property insurer, announced that it would not renew 72,000 home and apartment policies statewide. Fire-prone zip codes in Malibu and neighboring Pacific Palisades were hit particularly hard by the withdrawal, losing 50% and 69% of their State Farm policies respectively.

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Non-renewals intensify pressure on policy prices. The Malibu Foundation, a nonprofit created in the aftermath of the Woolsey Fire to support resilience and rebuilding, estimates that premiums in Malibu can be up to five times higher than in other places in California.

With traditional policies increasingly hard to come by, high-value property owners have been turning to non-admitted insurance. This lightly regulated type of coverage was developed as a safety valve for unusual and hard-to-insure properties, such as fireworks factories.

Historically, surplus insurance has been rare in the homeowners market because, among other reasons, it's not subject to a state cap on price increases, which can make it quite costly. But the number of non-admitted policies issued has more than doubled since 2018, according to the Surplus Line Association of California.

Growth is particularly strong in high-net-worth areas where homes are more valuable and owners can afford the rates. In Malibu's 90265 zip code, for example, there have been 1,069 transactions for non-admitted policies this year, according to association data, up from 770 in 2020.

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Not every transaction represents a single-family home; many were for commercial properties or multifamily units. But private homes factor into the equation, says Cliston Brown, vice president of public affairs for the association. 

"Malibu is one of the areas where we have seen a higher number of surplus-lines homeowners policies, which is not surprising considering the heavy concentration of high-value homes there," Brown said.  

Robert Feldman is the chief executive and co-founder of WOWS Insurance Services, a wholesale brokerage that creates non-admitted products specifically for high-end homes in fire-prone areas. He predicts the demand for non-admitted insurance is only going to intensify. 

"Unless there is a change in the regulatory market," Feldman said, up to 80% of policies in high-end, fire-vulnerable areas around Los Angeles like Malibu could be surplus within three to five years. (Owners of non-luxury homes who lack the means to pay very high rates have been turning to state-backed insurance, which is more affordable but offers limited coverage.)

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California regulators are acutely aware they have a problem. Insurance Commissioner Ricardo Lara is nearing the end of a year-long effort to woo back mainstream insurers by overhauling regulations to allow them to raise rates more easily. Some of these changes are expected to go into effect next year.

This effort was to secure, in exchange, a commitment from insurers to cover 85% of wildfire-prone areas in the state. But so far, the concessions to insurers haven't brought any relief to households, said Carmen Balber, executive director of the nonprofit group Consumer Watchdog. 

"There has been absolutely no relaxing of the insurance crisis," she said.