O.P. Almaraz, CEO of Allied Disaster Defense. Wildfire Prevention Expert and 26-year Disaster Restoration Specialist.
Since 2017, eight of the largest wildfires in California’s history have occurred. Not only are these fires getting bigger, but they’re also affecting more properties. Losses due to wildfire added up to $5.1 billion over the past 10 years. California’s property insurance market is reeling from these developments as insurance companies are forced to reduce their risk or face enormous payouts that could result in insolvency. Between wildfires and other natural disasters, like landslides and earthquakes, California business owners must know how to mitigate potential losses incurred by property damage.
The Current State Of Natural Disaster Insurance In California
Most of us buy insurance hoping never to use it. We make the purchase, put the binder on the shelf and never read it. Most property owners and leasers don’t realize that every insurance policy has specific types of disasters that aren’t actually covered.
Policymakers, insurers and the insured are all exploring how to adjust to changing wildfire risk in California. The most recent progress comes from Insurance Commissioner Ricardo Lara, who submitted first-in-nation wildfire safety regulations to reduce insurance costs. The proposed regulation would recognize and reward homeowners’ and businesses’ wildfire prevention, safety and mitigation efforts. It would require insurance companies to provide discounts to consumers under the California Department of Insurance’s Safer from Wildfires framework in partnership with state emergency preparedness agencies.
The Impact Of These Developments On Businesses
Unsurprisingly, natural disasters have a major effect on insurance companies. For example, the 2018 Camp Fire left an insurance company in financial ruin, unable to pay millions of dollars to its affected policyholders. It’s no wonder why, throughout the state, companies are increasing premiums or dropping customers altogether. As a result, most Californians who live in high fire severity zones are left with the last resort: the California Fair Plan, which offers basic coverage but comes at a greater expense than most wildfire insurance.
Meanwhile, according to FEMA, 25% of businesses never reopen after closing because of a natural disaster. Beyond that, the SBA estimates that 90% fail within two years of a disaster. This is because people find new places to shop, eat or purchase goods when their favorite businesses are temporarily shut down. So by the time a business can reopen, customers’ buying habits have been permanently altered.
3 Ways To Improve Your Property’s Risk Management
According to The Insurance Institute for Business Home and Safety (IBHS) and The National Fire Protection Agency (NFPA), reducing your wildfire risk will take effort but is certainly attainable. So, where do you start?
1. Risk Assessment
Every property is unique, so natural disaster prevention must start with a risk assessment. Your customized assessment will identify the vulnerable areas in your building and include an action plan for reducing or eliminating the risk. Sharing the risk with insurance companies can help reduce your rates, and of course, it will increase the chances of withstanding a disaster.
2. Building Materials
Think back to the story of the three little pigs. Each pig builds their home out of different materials, but only the brother who uses bricks to build his has the shelter that can withstand the Big Bad Wolf. When looking for a property for your business, or thinking of making updates, it’s vital to consider the best building materials that can better survive natural disasters.
When considering building materials for wildfire safety, in particular, remember that your big goal is to protect your property from small wind-blown embers. These cause the majority of wildfire-related property damage. Special attention should be paid to the property so that there are no combustible materials within five feet as well as installing vents and gutter guards specifically designed to keep these embers out of the property.
3. Vegetation Management
Once the property is assessed and hardened, review the vegetation nearby. As vegetation is susceptible to fire, high winds, earthquakes and flood waters, it’s safer if there’s no vegetation within five feet of the property. This can help reduce the chance that the property will be struck or impacted by damaged vegetation. If it’s not possible to remove any close-range vegetation, businesses can effectively utilize long-term fire retardant to render those plants, at the very least, non-combustible.
How To Optimize Your Disaster Preparedness Plan
Beyond protecting your property, businesses need a disaster preparedness plan. This is a set of procedures and guidelines to help employees properly react to any kind of hazard. Your disaster plan should include the following.
• A planned evacuation route.
• Options for off-site data backup, which will ensure you can maintain contact with customers, suppliers or employees in the event of a natural disaster.
• Options for storing important documents like building plans, insurance policies and employee contact information, such as keeping copies or having the originals off-site.
As California businesses continue to face risks associated with natural disasters—particularly an increased likelihood of a megaflood—it’s vital that they do their best to mitigate their potential losses. This includes keeping the property as safe as possible. While natural hazards can’t be prevented, businesses can prepare themselves to survive them.