Los Gatos homeowners risk losing fire insurance

Los Gatos resident Rob Stump never knows when he might get that dreaded insurance company call. Stump, who lives in a home nestled along one-way winding roads in the tree-covered Los Gatos hillside, needs wildfire protection — but he doesn’t know if State Farm will renew his coverage next year as major insurers abandon California.

Stump’s insurance, which costs about $2,055 a year, expires in November. His policy will likely be one of the more than 1,200 in the Los Gatos area and 30,000 statewide that State Farm won’t renew. That’s unless state legislation allows it to raise rates in line with inflation and increased catastrophe risk in a hotter, drier climate, according to State Farm data and statements . It’s a statewide dilemma for homeowners in high fire risk areas, forcing many to look for protection through the California FAIR plan. The state-syndicated program is pricier insurance that only covers fire as a last resort for people who can’t get coverage elsewhere.

Stump, who lives in a rustic neighborhood of about 60 homes, isn’t the only one affected. His neighbor Jon Witty had to switch from Nationwide Insurance to the FAIR plan for his Lake Tahoe home a few years ago. The change hiked his premium from $793, which  initially included fire protection, to $6,266 after joining the FAIR plan to protect against fire loss in addition to his standard plan.

Witty’s Los Gatos home hasn’t felt the insurance pain yet because his policy expires next year, but everyone in his neighborhood is resigned to the same fate.

“It’s very disconcerting to every year wonder, ‘Well, what’s going to happen this year? Is this the year we lose our insurance?'” Witty told San José Spotlight. “It’s a little bit like being in a firefight and trying to figure out when the sniper has you in the sight.”

Why is this happening?

State Farm insures about one in five homes statewide and implemented its non-renewal policy in July because of the limitations of older state regulations preventing rate increases, according to a statement. The insurer doubled down after it stopped accepting new homeowners insurance applications last year .

A State Farm spokesperson referred San José Spotlight to Janet Ruiz, Insurance Information Institute director of strategic communication, when asked about its policy shifts.

Ruiz said this largely goes back to Proposition 103, a 1988 law requiring the state’s insurance commissioner to approve new insurance rates. The legislation kept California insurance premiums lower than the nationwide average, which Ruiz said created an unsustainable business model for insurers dealing with inflation and climate change.

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As a result, the FAIR plan went from nearly 154,500 policies in 2019 to 408,432 in June, as traditional insurers left the market and are not eager to return unless state regulations match their business models, according to FAIR data.

“Every aspect of our lives that has gone up, the insurance companies have to pay when you have a loss,” Ruiz told San José Spotlight.

The state is trying to entice insurers back. Insurance Commissioner Ricardo Lara announced last year California would begin implementing a sustainable insurance strategy that would allow insurers to use forward-looking catastrophe models to set rates, rather than the existing practice of looking at the area’s history. Ruiz expects that to happen in January, which she said will slowly bring insurers back.

The California Department of Insurance did not respond to requests for comment.

Rex Frazier, president of the Personal Insurance Federation of California, said the updates are necessary.

“We’ve had a mindset in California where we want to push down rates on these large insurance companies. You can understand the impulse, but at some point, you need an adult in the room,” he told San José Spotlight. “Why do we have a system that acts as if a hotter, drier climate is not in our future?”

Proactive steps

Stump understands insurers’ need to charge higher rates in a catastrophe prone area . He said because he l ives in the hills where one stray spark could decimate his entire neighborhood, he accepts the extra costs.

“I’m not one of these individuals that’s out running around and go, ‘Oh, boohoo, poor me,’ because I choose to live here,” he told San José Spotlight. “It’s like moving in next to an airport and complaining about the airport.”

His neighborhood wasn’t always this risky. When Stump’s parents bought the house in 1965, they never worried about fire. There were fewer trees and climate change wasn’t a conversation, even when a fire in 1997 destroyed six homes in another Los Gatos hillside neighborhood.

Stump’s wake-up-call was in 2019, when a house burned down near him. Since then, Stump has spearheaded his community’s participation in Firewise USA, a program that helps reduce wildfire risk through education. This summer, Stump said almost all of the 60 homes in the neighborhood pitched in $700 each to clear dry brush and trees from the roadside.

Witty said he’s spent about $35,000 on tree and brush removal over the past four years.

Erica Ray, spokesperson for the Santa Clara County Fire Department , commended the neighborhood’s efforts.

“These preventative steps that they are able to take proactively are so critical, right? Whether you have insurance or not, if you live in Los Gatos or near it, taking these steps ahead of time is going to be critical,” she told San José Spotlight. “That can make the difference between losing your home or not in a wildfire.”
Stump said he doesn’t mind pitching in to make the community safer. He looks forward to the traditional insurance market’s return.

“Once the traditional insurance market comes back, we want to (say), ‘Over here. Look at what we’ve done,'” he said. “‘Look at all the measures we’ve taken to reduce the threat of wildfire in this area so that we might become attractive to the traditional insurance market.'”

Contact Annalise Freimarck at annalise@sanjosespotlight.com or follow @annalise_ellen on X, formerly known as Twitter.

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