Is fire insurable? 121
There may be a fourth option. It may be possible to restructure markets
to address affordability and availability. This approach would be to remove
the vulnerability to price undercutting of an insurer who does not isolate
high-risk addresses to an insurer who does. How does one do this? Perhaps
by regulation that does not allow ratemaking that accounts for the address
of a home. Such a regulation would impose undistorted risk pools, or at
least undistorted by property address.
Insurers still could and would rate risk on other vectors. Such as the materials a home is built with. Or whether the home has defensible space around
the home. Or the wiring in the walls and its profile for fire risk.
One would expect insurers to still write the risk. Because there are a host
of high-value homes in fire-exposed locations, and insurers will not simply walk away from insuring Bondi Beach, NSW, Australia or Malibu, CA,
United States.
One would expect the price to be affordable. While not a perfect analogue, this has been the experience of a similar structure in private healthcare insurance in the United States under the Affordable Care Act. And
while the data is sparse, there is some reason to believe that in the United
States, the total cost of even private All Perils insurance would be less than
2% of an average homeowner’s annual expenses.
But the data and research are sparse. None of this at present can be
known with confidence.
Conclusions
Both the governments of Australia and the United States identify a high prevalence either of uninsureds or underinsureds as concerning (FIO 2015, p. 3;
ACCC 2020, p. vii; ASIC 2007, p. 2). The title of this chapter poses a question:
Is fire insurable? The answer this chapter gives is unsatisfactory: Perhaps.
This chapter tackles only one issue related to insurance responses to wildfire and bushfire – insurance for rebuilding a home. And this chapter does so
largely in cursory fashion. It is important for any researcher to realise that this
chapter is only a tree in a larger forest. There is so much more involved in a mass
fire event: insurance of out buildings and other structures, personal property,
and alternative living expenses; insurance for renters, businesses, farms, and
mobile homes; and insurance to mitigate the impacts of displacement of persons and jobs. The policy ripples of fire beyond insurance are mind-boggling.
Just to mention a few: relief for the uninsured, health risks, disproportionate
impacts on minority communities or across gender lines, mitigation, resiliency,
energy policy, climate change, and environmental degradation. Insurance of
fire is a book. Fire is a multi-volume set. But ideally this chapter is a primer.
References
Administrative Rulemaking File for Cal. Code Regs, Tit.10, § 2695.183 2015, Ass’n.
of Cal. Ins. Cos. v. Jones, 235 Cal. App. 4 th 1009 (No. B248622).
There may be a fourth option. It may be possible to restructure markets
to address affordability and availability. This approach would be to remove
the vulnerability to price undercutting of an insurer who does not isolate
high-risk addresses to an insurer who does. How does one do this? Perhaps
by regulation that does not allow ratemaking that accounts for the address
of a home. Such a regulation would impose undistorted risk pools, or at
least undistorted by property address.
Insurers still could and would rate risk on other vectors. Such as the materials a home is built with. Or whether the home has defensible space around
the home. Or the wiring in the walls and its profile for fire risk.
One would expect insurers to still write the risk. Because there are a host
of high-value homes in fire-exposed locations, and insurers will not simply walk away from insuring Bondi Beach, NSW, Australia or Malibu, CA,
United States.
One would expect the price to be affordable. While not a perfect analogue, this has been the experience of a similar structure in private healthcare insurance in the United States under the Affordable Care Act. And
while the data is sparse, there is some reason to believe that in the United
States, the total cost of even private All Perils insurance would be less than
2% of an average homeowner’s annual expenses.
But the data and research are sparse. None of this at present can be
known with confidence.
Conclusions
Both the governments of Australia and the United States identify a high prevalence either of uninsureds or underinsureds as concerning (FIO 2015, p. 3;
ACCC 2020, p. vii; ASIC 2007, p. 2). The title of this chapter poses a question:
Is fire insurable? The answer this chapter gives is unsatisfactory: Perhaps.
This chapter tackles only one issue related to insurance responses to wildfire and bushfire – insurance for rebuilding a home. And this chapter does so
largely in cursory fashion. It is important for any researcher to realise that this
chapter is only a tree in a larger forest. There is so much more involved in a mass
fire event: insurance of out buildings and other structures, personal property,
and alternative living expenses; insurance for renters, businesses, farms, and
mobile homes; and insurance to mitigate the impacts of displacement of persons and jobs. The policy ripples of fire beyond insurance are mind-boggling.
Just to mention a few: relief for the uninsured, health risks, disproportionate
impacts on minority communities or across gender lines, mitigation, resiliency,
energy policy, climate change, and environmental degradation. Insurance of
fire is a book. Fire is a multi-volume set. But ideally this chapter is a primer.
References
Administrative Rulemaking File for Cal. Code Regs, Tit.10, § 2695.183 2015, Ass’n.
of Cal. Ins. Cos. v. Jones, 235 Cal. App. 4 th 1009 (No. B248622).