Tracy Walker on her Boulder Creek property.
“I have no idea if they would cancel again, but I’m scared that if they do, it could be months more until they can come back and do it,” Tracy Walker says of a contractor completing a second geologic hazard evaluation on her Boulder Creek property.
(Kevin Painchaud / Lookout Santa Cruz)

Santa Cruz mountain communities brace for turmoil as home insurers leave California over wildfire risk

As insurance companies like State Farm pull out of writing new policies in California over concerns about the cost of wildfires, homeowners in high fire-risk areas, such as the San Lorenzo Valley, can expect to pay higher premiums as they pick from a much smaller pool of property insurers. An insurance program that offers limited fire insurance may become the only option for many in the Santa Cruz Mountains — one that experts warn could be far too expensive for some low-income families.

Many Santa Cruzans looking for homeowner’s insurance — particularly those who live in the mountains — are finding fewer, and more expensive, options as a growing number of providers stop writing new policies.

In Santa Cruz, where the housing demand is high, inventory is low and destructive fires are expected to become more common, local insurance and real estate agents say homebuyers in more urban areas are likely to continue to have a variety of insurance options. The California Department of Insurance says there are still 115 insurance companies writing residential policies in the state.

But for those in high fire-risk areas, such as the San Lorenzo Valley, homeowners can expect to pay higher premiums as they pick from a much smaller pool of insurance companies. For many, an insurance program that offers limited fire insurance to homeowners may become their only option.

State Farm became the latest insurance company to pull out of writing new policies in California last month over what it said were “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.” The insurance company is the largest provider in the state. State Farm’s May 27 decision affects only new policies. Current customers won’t lose their insurance and the company is continuing to write auto insurance policies. Allstate stopped writing new policies in California last fall.

Jennifer Watson, president of the Santa Cruz County Association of Realtors, and realtor Jayson Madani say, so far, home sales haven’t been affected by the change. Properties are still receiving multiple offers and the number of homes for sale has remained low.

“It hasn’t been stopping our sales,” said Madani. “We’ve been very proactive in finding and letting people know that we already have quotes [from insurance companies].”

Tanner Tedsen, a Soquel insurance agent with Farmers Insurance, said calls came rushing into his office after the news that State Farm was pulling out of California. “It definitely caused a lot of chaos over the last few weeks,” he said. Some buyers who were closing on a home had to scramble to line up a new insurance provider ahead of their closing date.

For those who live in built-up areas of the county, not much has changed, Tedsen said. “I just wrote a policy last week for a family down in Aptos,” he said. “There was no fire risk at all, so we were able to write it through Farmers. It was just under $2,000 a year for this policy. So it’s definitely still reasonable in town.”

But it’s a different story in the areas where homes are surrounded by trees, most often in the mountains.

CZU aftermath
(Kevin Painchaud / Lookout Santa Cruz)

Farmers Insurance uses a “FireLine score,” which is based on the slope of the property, the distance to a fire station and fire hydrant, the surrounding vegetation and how difficult it would be for emergency vehicles to access the home. Farmers provides insurance for homes with a FireLine score of 3 or less – with zero being the lowest-risk property and 30 the highest.

Verisk Analytics, a data and risk assessment firm, created the FireLine tool to help assess wildfire risk.

That’s not a problem for homes in neighborhoods like the West Side of Santa Cruz, the Pleasure Point area, and Rio Del Mar in Aptos, Tedsen said. But it often prevented the company from insuring homes in places like Boulder Creek.

State Farm was known for providing coverage where almost no one would, Tedsen said. “They just had probably 70% if not more of the the market share, especially up in the Santa Cruz Mountains.”

Many of those mountain buyers or homeowners who are dropped by their insurance company will now likely have to turn to the California Fair Access to Insurance Requirements (FAIR) Plan, which provides insurance to homeowners who can’t find coverage because of fire risk through the traditional market.

The FAIR plan was established by the state in 1968. It is run by an association made up of all private insurers who write property and casualty business policies in California. Insurers take on losses and receive profits from the plan.

While the plan was created to provide a last-resort option for homeowners, the difference in premiums between a private insurance policy and a FAIR Plan policy can be dramatic. That might make the cost of FAIR plans unfeasible for lower-income households whose properties no longer qualify for private insurance.

“We’re at a point where the FAIR Plan is essentially the only option for a lot of these homes and there’s no competition,” Tedsen said. “And as for the rates, they’re pretty much whatever the FAIR Plan says it is, that’s what it’s going to be.”

To illustrate the difference in costs between the FAIR Plan and other providers, Tedsen describes two different homes in unincorporated Santa Cruz County that were purchased last year.

The first home is on Branciforte Drive and has a FireLine score of 10. It’s about 1,800 square feet and sold for less than $800,000. Without private insurers willing to write a policy, the homeowners went to the FAIR Plan for fire insurance and then had Farmers provide the rest of the policy – known as a difference in conditions policy. The total premiums came to about $9,000 a year.

The second home, located on Sims Road, has a score of 3 and therefore didn’t need the FAIR Plan. The approximately 1,800 sq foot home sold for nearly $1.4 million, almost twice the price of the Branciforte home. Its annual insurance premium was about $2,100 through Farmers.

This jump in price could have a big impact on home buyers who are applying for loans on properties that only qualify for the FAIR plan, according to Mark Junod, an Aptos mortgage lender with Crosscountry Mortgage who has worked in the industry for 38 years.

“If we were planning on [the premium] being $200 a month, and it ends up being $800 a month, they may no longer qualify, even though we said we have you pre-approved,” he said. “Well, we had you pre-approved for that amount with that lower insurance quote.”

This could mean homebuyers have to find a different house or make a lower offer. Tedsen also imagines that higher premiums could potentially lower mountain home prices in the future.

Junod worries about the people on fixed incomes who can’t afford the price hike.

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“Imagine you’re an owner of a property, you’re 70 years old and you’re a widow,” he said. “Your insurance just got canceled and you were paying $900 a year. You go to the FAIR plan, and now it’s $7,000. You’re thinking, ‘How do I pay that? I’m now getting kicked out of here.’”

Two years after the 2020 CZU Complex Fire burned down her Bonny Doon home, Tonje Wold-Switzer’s insurance dropped her. After striking out with providers who wouldn’t insure her home, she began looking at the FAIR plan.

Tonje Switzer
(Kevin Painchaud / Lookout Santa Cruz)

Ultimately, Wold-Switzer and her partner were able to get home insurance from United Services Automobile Association, known as USAA, which offers financial services to military members, veterans and their families. Wold-Switzer qualified through her partner’s father.

But she’s concerned about the dwindling options for mountain residents like herself. “It’s not great when you’re a consumer of something as important as fire insurance or homeowners insurance, to not have options,” she said. “I want to be able to shop around and find the best deal. But that option has been taken away from us.”

Many believe that the large insurance companies are pulling out of the state as a negotiating tactic to pressure Insurance Commissioner Ricard Lara to approve higher rate increases. Such a scenario has happened in the past, said Tedsen, and typically insurance companies have returned within two years. “I think when that happens, then we’re going to see carriers come back, we’re going to see more competition, and then that’s going to drive pricing down,” said Tedsen.

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In the meantime, the California Department of Insurance is encouraging homeowners to mitigate wildfire risk, which could make them eligible for discounts from insurance companies, and is in discussions with providers to write more policies in the state so homeowners have more options.

Another strategy legislators are looking into is giving insurers the ability to evaluate risk from catastrophes such as hurricanes and wildfires – known as catastrophe modeling. The insurance department currently doesn’t allow carriers to suggest and implement rates that use catastrophe modeling as opponents are concerned the rate increases will be too extreme.

Weeks after State Farm’s announcement, the California State Assembly insurance committee met to discuss catastrophe modeling and how its prohibition in California could be contributing to the insurance crisis. The insurance department will be hosting a public workshop on this issue on July 13.

Since the fire, Wold-Switzer said she and about 25 of her Pine Ridge Road community homeowners worked to lower the fire risk of the area. For example, they reduced their risk by clearing vegetation within 100 feet of each home and within 10 feet of the roads. They became a Firewise community in 2021.

Run by the National Fire Protection Association, the Firewise program helps neighborhoods work as a unit to reduce fire risk. About 45 neighborhoods in Santa Cruz County, from Bonny Doon down to Soquel, have the designation.

Wold-Switzer said the large companies leaving the state is adding another obstacle for the households who were already struggling to rebuild their homes after the CZU Complex fire.

“It’s disheartening,” she said. “Because we work so hard to support our community members in rebuilding that, what when more barriers are put in place for doing so, it makes the decision to actually rebuild harder for people.”

a scene in Bonny Doon
(Kevin Painchaud / Lookout Santa Cruz)

FOR THE RECORD: This story was updated to clarify that the FAIR Plan is run by private insurers and to clarify Tanner Tedsen’s comments about why some insurers have stopped writing new policies in California.