Why California Wildfires Could Spike Already-High Wyoming Insurance Rates

Wyoming wallets have been on fire when it comes to homeowner’s Insurance rates, with customers reporting their rates doubling and tripling in the Cowboy State, even for longtime customers.

Devastating wildfires this past season that burned more than 850,000 acres in Wyoming didn’t help, either.

The problem is not likely to be quenched by what’s happening now in California, industry experts say. In fact, the destruction there is so large, some believe it could even have broader impacts on the nation’s economy as a whole.

“I think it’s going to affect the whole country,” Ron Pinther told Cowboy State Daily.

Pinther has been selling insurance for the past 17 years and recently retired from the industry.

“It’s my understanding that some of the big insurance providers in the state moved out of California, and some didn’t renew a lot of those policies,” Pinther said. “So, I don’t know if people hopefully found insurance someplace else, but I think there’s going to be a ripple effect. 

“If people have lost their house, and they didn’t have insurance, they’re not going to pay their mortgages.”

Those failed mortgages will travel upstream, Pinther suggested, affecting not just the companies that made those loans, but other investors as well. That could trigger a huge correction to the stock market.

“The stock market has been over-inflated for years and it should have made a huge adjustment a long time ago,” he said, adding that the kind of losses he’s seeing on television are what makes him believe this could reach as far as the stock market.

“I’ve heard the losses were as high as $135 billion,” he said. “And now, I’ve just heard recently $250 billion. And I see it on television, neighborhood after neighborhood. Thousands of acres that have been devastated.”

Why Rates Are Likely To Rise

Insurance regulations are meant to ensure a company’s rates reflect the costs of doing business in a particular state. 

But the reality is a lot more complicated. 

A recent Harvard study found that when huge natural catastrophes happen, annual premium increases seem to follow, particularly in states that have looser regulations, even if their risks might be comparable to states with lower premiums.

Wyoming Department of Insurance Commissioner Jeff Rude told Cowboy State Daily that he thinks the ripple effects from the recent California fires herald price increases ahead.

“They’ve spread the costs of these fires across the country,” he said. “And so, it does impact other states and other people in those states.”

Part of the reason for that is a cost that’s likely to hit insurers fairly soon, and that’s for what’s known as reinsurance. 

“Reinsurance is what the insurance companies purchase to protect themselves from catastrophic events and going bankrupt,” Rocky Mountain Insurers Association Executive Director Carole Walker explained. “And we’ve seen reinsurance rates go up at unprecedented levels.”

Walker said she, too, expects ripple effects that will lead to higher premiums in other states, including Wyoming. 

“There’s going to be that huge reinsurance bill,” she said. “And, I know it’s a tough pill to swallow, but, as homeowners, we’re just going to have to adjust to what it really costs to replace and rebuild your home at a time when the chance of having damage to your home is exponentially higher.” 

Replacement costs have been affected by inflation, Walker added, which is ratcheting them up to new levels. They are among variables that insurance companies use to calculate rates.

Rude added that Wyoming does have insurers with direct exposure to the California market as well. 

“Allstate writes just over 4% of our homeowners coverage,” he said. “I thought that would be a little bit more than that, but it’s 4%. Our biggest writers are State Farm and then Mountain West, and then Farmers and a couple others ahead of them.”

Farmers Insurance is Wyoming’s third largest writer for homeowners insurance and has almost 10% of Wyoming market.

Insurance Deserts

Insurance providers hard hit in one state are likely to look more closely at risks in their other markets, Rude suggested, to make sure they are setting appropriate rates elsewhere.

“Insurers assess their risk every year,” he said. “And they may look at some areas and say, ‘We want to write less business here. We’re willing to take on more business there. They all have their own individual company modeling. It’s an algorithm that they rely on to say, ‘Where’s the risk, and what risk can they afford.’”

That kind of assessment isn’t limited to fires. It also applies to risks from flooding, hail, and other problems. 

“They don’t want to be too concentrated in any one area,” Rude said.

Wyoming, with more than 800,000 acres going up in smoke this past summer in various wildfires, including the Elk fire and the Fish Creek and Pack Trail fires will likely be under that algorithm microscope.

That’s something Rude said Wyoming and other states are working to get a handle on.

“They don’t allow us or anyone to look at their algorithms, it’s all proprietary,” Rude said. “One insurer doesn’t want the other insurer to know what they’re doing. But we know it’s happening out there.”

Rude said Wyoming was fortunate in that, even though a lot of acres did burn, very few structures were lost.

“We are trying to do a data call nationwide, all states are trying to do a data call, to get some granularity on some of this information,” he said. “It’s not perfected yet. But we’re hoping to get more data that would show what ZIP Codes are affected, to see if there are areas that are truly insurance deserts.”

Community-Wide Mitigation Efforts Can Help

Preventing insurance deserts is something that communities as a whole can take a hand in, Walker suggested. 

Places like Story, Wyoming, where residents have reported difficulties obtaining affordable homeowners insurance, for example, might want to consider a community-wide effort at improving fire safety.

“We need to bring down the risk,” Walker said. “And that’s not an insurance solution. That’s a how do we follow the science, which shows us that if we do the right things, not just on our own property, but at a community level, that we’re able to bring down the risk of someone losing their home.”

If those efforts can take place at a community level, it improves the chances that the overall risk scales go down enough for insurance companies to take those areas on. 

“I think that’s what we really need to be focus on long term is how do we bring down the risk, especially in states like Wyoming,” she said. “I mean, if you look at Pacific Palisades, that sagebrush, that slope, those homes packed tightly together — we could do very impactful mitigation steps.”

Avoiding California Mistakes

The other key, Walker added, is to avoid making some of the mistakes California has made.

“In California, they suppressed insurance companies’ ability to price for the marketplace,” she said. “So that led to large insurance carriers leaving that market.”

California has been working on reforms, Walker added, but those have not come along in time for the current conflagration.

“So, for the rest of my states in the Rocky Mountain region, let’s not get ourselves into that problem in the first place,” she said. “We still have insurance companies willing to insure, because they can price for the increased costs to cover clients in a property insurance market where the chances for having a large catastrophic event are more.”

Rude echoed Walker’s sentiment and said state-level solutions from the legislature are not something he’s really looking at yet.

“The commissioner in California had the authority, without the legislature,” he said. “He had the authority already given to him to say, we are going to require insurers to renew in these areas. And the insurance company said, ‘Well, we’re no longer going to write fire insurance in your state.’ So, you have to be really careful what you ask for, because I’m not going to repeat their mistake. I’m not going to ask for that authority. This is sort of a free market issue, where companies decide where to sell their products.”

Renée Jean can be reached at renee@cowboystatedaily.com.