California Insurance Commissioner Ricardo Lara will review surplus homeowners insurance policies after questions arose over wildfire deductibles in coverage sold to residents exposed to fire risk, according to the California Department of Insurance.
The review follows a Washington Post inquiry into policies containing separate deductibles for losses tied to brush fires, wildfires, firestorms, or related vegetation fires.
These provisions appeared in surplus lines policies, a market often used when homeowners struggle to secure standard coverage.
Los Angeles insurance attorney Shant Karnikian noticed one such deductible while reviewing a prospective client’s AIG home insurance policy. The policy carried a $100,000 standard deductible, but also included a separate $621,000 wildfire deductible for fire losses involving vegetation.
Karnikian said the provision looked unfamiliar from earlier fire disaster work. He called the wildfire deductible a “bait and switch” and compared it with earlier smoke-related coverage limits his firm challenged under California consumer rights laws.
The attorney later found similar wildfire deductibles in other policies. He said the issue appears less often in standard homeowners coverage and more often in surplus lines, where insurers operate outside some standard filing and oversight processes.
Surplus lines coverage often functions as a last resort for homeowners who cannot find admitted market insurance. These carriers hold licences outside California and receive exemptions from some state regulatory procedures. State officials now say wildfire deductibles in those policies still deserve scrutiny.
Michael Soller, deputy commissioner of communications for the California Department of Insurance, said Lara will launch a review of surplus line policies. He said the department’s long-standing position treats rules for admitted carriers as applying equally to surplus carriers unless a specific exception exists.
California homeowners policies generally do not separate wildfire from other fire hazards. State insurance law requires residential property coverage to protect against fire loss, regardless of the type or cause.
A wildfire deductible changes the amount available for one fire category, which regulators view as conflicting with that requirement.
State regulators have addressed the issue before. A Washington Post analysis of regulatory filings found insurance officials began asking carriers in early 2020 to withdraw requests to add wildfire deductibles.
Wildfire deductibles often use a percentage of the home’s total coverage limit. Filings, policies, attorneys, and consumer advocates show examples of 5% or 10%. In one policy reviewed by the Post, the deductible reached 50% of the family’s total house coverage, equal to more than $3.5 mn.
Insurers argued in filings that higher wildfire deductibles give residents an option to reduce premiums. Consumer advocates and insurance experts take a different view, saying these provisions shift more loss costs to homeowners and often sit deep inside long policy documents.
Insurers keep weakening a product households rely on after major disasters. Wildfire deductibles represent another example of coverage becoming less protective while premiums continue rising.
Surplus lines once occupied a smaller part of the homeowners insurance market. That has changed as admitted insurers pull back from catastrophe-exposed areas, mainly because extreme weather and disaster losses have increased costs.
California has seen especially rapid surplus lines expansion. Some of the largest admitted insurers have also raised premiums by more than 10%, leaving more homeowners pushed toward alternative markets.
Surplus line insurers receive exemptions from filing policy forms and rates with state regulators. Experts still say those companies must follow statutory requirements stating residential property policies cover all loss by fire.
California law applies to all insurance companies. The Surplus Line Association of California, a nonprofit representing surplus carriers and advising the state insurance department, said it does not track how surplus carriers use wildfire deductibles.
Disaster-specific deductibles already exist in other insurance markets. Florida insurers began adding separate hurricane deductibles after Hurricane Andrew struck in 1992 and left insurers responsible for $15bn in damages.
Florida’s hurricane deductibles have left more homeowners claims unpaid over time. 50% of Hurricane Milton claims closed without payment because of those deductibles.
California laws aim to prevent that kind of structure. The purpose of insurance is to indemnify people after a loss, and she questioned whether percentage deductibles treat consumers fairly under California’s insurance framework.
Regulatory filings show major insurers knew the department’s position. Some of the same companies that later used wildfire deductibles in surplus policies had earlier sought approval for similar language in admitted homeowners policies.
Allstate became the first admitted carrier to request wildfire deductibles in 2015, according to the Post review. State regulators initially approved the provision to encourage Allstate to return to California after an eight-year pause in new policy writing.
Allstate stopped writing new California policies in 2007, partly because of wildfire costs. Over the next few years, nine other carriers, including AIG and Nationwide, submitted requests to add wildfire deductibles.
Regulators reversed course in 2019, deciding the provisions conflicted with state consumer protection laws. In January 2020, the department told Nationwide it would not approve separate wildfire deductible requests because such language conflicted with consumer protection rules.
Carriers later withdrew those requests, according to filings. Some insurers, including AIG, then included wildfire deductibles in separate surplus line policies.
Cincinnati Insurance Company added a surplus line option in 2020. One year later, the company said in a filing that it removed the wildfire deductible from its standard homeowners policy at the department’s request.
A current Cincinnati Insurance surplus policy reviewed by the Post for a Los Angeles fire victim still included a wildfire deductible above $1.2 mn. Company spokeswoman Betsy Ertel said Cincinnati continually reviews California Department of Insurance requirements to comply with state regulations.
For families who lost homes in last year’s Los Angeles fires, the deductibles leave less money available for recovery. Every recovered dollar matters after total loss events, especially when rebuilding costs remain elevated.
According to Beinsure analysts, the dispute puts California’s surplus lines market under stronger political and regulatory pressure. The affordability crisis has pushed homeowners toward surplus carriers, but the use of wildfire deductibles raises a harder question: whether last-resort coverage still delivers the fire protection California law expects.
