The recent wildfires in California have unfortunately devastated communities and businesses alike. As a small business owner in California, it’s crucial to understand your insurance coverage, how to file a claim, and what to expect once you’ve notified your insurance carrier.
Wildfire Insurance in California: How To Navigate, Costs & Coverage
Wildfire insurance in California or any other state is not a special type of policy. Any type of fire (including a wildfire) is a named loss covered under a standard commercial property policy. Commercial property insurance can be purchased either as a stand-alone policy or bundled with several other policies in what’s called a business owner’s policy.
While property coverage will help with damage to the structure, a complimentary policy small business owners will want to use is business interruption insurance—helping with business expenses while the business is unable to operate.
Key Takeaways:
- Wildfires are covered under the named peril of fire in a property policy.
- This type of loss is a commonly covered loss in homeowner and commercial property policies.
- Business interruption insurance helps cover expenses, like employee payroll or rent, when a business cannot operate because of a loss like a wildfire.
- For a natural disaster, file a claim directly with the insurance company through the loss reporting line.
- Take an inventory of all known damage, along with the items’ approximate age and value for the insurance company.
Wildfire Insurance: Then & Now
According to the National Interagency Fire Center, since 2023 there have been over 180,000 wildfires in the US. These wildfires have burned millions of acres of land and caused billions of dollars in damages. The cost of these losses has been so high that in several states, like Florida, Texas, and California, insurance companies have canceled policies, stopped selling new policies, or completely left that state’s market. This leaves homeowners and small business owners scrambling to find wildfire insurance.
Covering a fire loss is nothing new for insurance companies. In fact, most insurance companies started insuring only one type of loss: a fire. For many insurance companies, the original name included the word fire. For example, The Hartford is The Hartford Fire Insurance Company.
Interestingly, many city fire departments evolved out of private fire brigades that were funded by insurance companies. In England, these units were even called insurance brigades. This practice has continued into the present day where several carriers like AIG or Chubb, who insure wealthier clients, will offer private firefighting services as part of the policy benefits.
What Is Wildfire Insurance
While there is no exclusive “wildfire insurance” policy, it is a type of covered loss under traditional property policies. This is true whether you are a homeowner or a small business owner. Additionally, having business interruption insurance is an important piece in keeping your business alive while the building is being repaired or even rebuilt.
Keep in mind that all property policies have a deductible. This is the amount of money that your business will be responsible for in the event of the loss. This is not an amount you pay the insurance company. Rather, the deductible is subtracted from what the carrier pays your business.
Commercial property insurance is a first-party coverage (meaning it is for your property) that covers structures and contents. Specifically, commercial property covers losses to the following:
- Building structures
- Outbuildings
- Office equipment
- Inventory
- Furniture
Commercial property policies offer coverage on what is called a named peril basis. This means if the type of loss is named in a policy, then it is covered. Fortunately, for nearly every type of standard policy, fire is a named peril. This includes wildfire losses that would be covered under the policy.
What if you’re a business owner who rents their property? In that case, you should have a form of commercial property insurance known as business personal property (BPP). If you could pick up the space you rent and shake it, everything that would fall out is what is covered by a BPP policy.
If you rented an apartment, this would be like renters policy that insures the contents of the building. The types of covered losses are the same as other commercial property policies, so a wildfire loss would fall under a BPP.
While not typically offered as a standalone coverage but instead as an endorsement or included in a bundled property package, business interruption insurance is a critical part of helping your business stay afloat after a devastating loss like a wildfire. This coverage is designed to help provide financial assistance to pay for things like the following:
- Employee payroll
- Mortgage or rental payments
- Lost income
- Relocation expenses or other extra expenses
For those who are facing the devastating loss of a wildfire or any other natural disaster, please remember: this coverage usually has a “time” deductible. This means your business will need to be closed for a certain amount of time, usually 48 to 72 hours, before coverage becomes applicable.
A business owner’s policy (BOP) is another important type of wildfire insurance in California or any other state. It is a combination of general liability insurance, commercial property, and business interruption coverage. With a BOP you will have one policy for multiple types of coverage, and if you need to file a wildfire insurance claim, you will have coverage for your property and lost business income.
How Much Does Wildfire Insurance Cost?
Since wildfire insurance is another name for a property policy, the rates are not separate. This is true whether it is a homeowner’s policy or a commercial property policy for a small business.
- According to the Insurance Information Institute, the average annual premium for homeowners insurance in California in 2021 was $1,403.
- For a commercial property like a restaurant, the average annual premium for property insurance can range from $2,000 to $6,000.
When calculating the cost of property insurance, insurers take a number of factors into consideration. Among those are as follows:
- Age of property: The age of the property has a direct relationship to the amount of money an insurer must pay out if there is a loss.
- Codes: Is the building up to code on wiring, ventilation, and building materials?
- Condition: Again, the condition of the property has an impact on the payout by the insurer.
- Size: A smaller brick-and-mortar building will cost less to insure than a large, multifloor complex.
- Materials: How the building is constructed, the status of updates, and the type of roof are all factored into wildfire insurance costs.
- Location: The geographic location, zip code, and proximity to predicted natural disasters will impact your annual wildfire insurance costs.
How to File a Wildfire Insurance Claim
First, wait until you have a loss to file a claim. Filing one “early” to get ahead in the queue will not be beneficial, especially if the adjuster calls you and then closes the claim because you don’t have a loss yet.
In the unfortunate event that you do end up needing a wildfire insurance claim, contact the insurance company directly instead of your agent. Your local agent may very well have had their office or home burn down and is dealing with the same problems you now face. The only thing the agent can really do in this situation is file the claim for you, but going that route can just delay the process.
The insurance company should have a 24/7 call center set up for reporting these losses. If you do not know who your company is, then contact your mortgage company. It should have a copy of your policy with the policy number on file.
When you file a claim, ask as many questions as you can about what information they need, what the expected timeline will be, and who will be handling it. It may be assigned to a catastrophe “bucket” of adjusters, so instead of a specific person, there will just be a general number where anyone can help you. This is normal and is intended to help you get the loss resolved quickly.
When you call, ask them to review the coverages you have so you’ll know if there are any other claims you could file to help out your business.
What to Expect After Filing a Claim
Once you filed the claim, you will be given a claim number—hold on to that. Many carriers will let you track the claim online or through an app using that number. Sometimes you can add documentation to the claim even if the adjuster hasn’t contacted you yet.
Be patient. If it is a significant natural disaster, there are thousands of businesses and homeowners facing the same unfortunate loss as you, and insurance companies simply don’t have the staff to handle those immediately. An adjuster will be in touch as soon as possible. They may also visit your building before contacting you, as there are field adjusters that will move from property to property evaluating the damage.
While you wait, take stock of your loss. Make a list of everything that has been damaged or lost with its approximate age and value. Review any photos you took, whether personal pictures or ones for social media, that may capture any of the damaged property so that you can build the case of your loss to the insurance company.
Finally, keep track of any expenses your business is taking on, whether these are normal ones or extraordinary expenses related to the loss.
Frequently Asked Questions (FAQs)
A fire policy is another name for a property policy. For small businesses, this would be a commercial property policy or a business owner’s policy.
A property policy, commercial property or BOP, are the two best policies for protecting against fire damage. If your work is in construction, you’ll need an inland marine policy to protect your tools and equipment when they are off-site at a job location.
Small businesses will need a commercial property policy, or a BOP, to help in the event they suffer a fire loss. Additionally, having business interruption insurance to help manage bills and payrolls while the business is unable to operate is crucial.
Bottom Line
Unfortunately, wildfires have been happening with greater frequency recently. However, the good news is that any standard commercial property policy has coverage for a wildfire. That coverage, coupled with business interruption coverage, will help put you in a position where your business will be in a place to survive the natural disaster and continue to operate when things return to normal.
