As California faces one of its most devastating wildfire seasons on record, many commercial real estate owners are not only feeling the immediate impact of the fires themselves but also dealing with the broader consequences on the insurance market. With wildfires becoming more frequent and intense, property owners are seeing their insurance premiums rise, coverage terms change, and insurers adjusting their risk assessments. Navigating these changes has become a pressing challenge for property owners working to protect their buildings and ensure the long-term stability of the businesses that rely on them in high-risk areas.
The Wildfire Crisis in California
The tragic reality of California’s wildfires is unfolding once again, with numerous fires threatening homes, businesses, and communities, especially in Los Angeles and surrounding areas. As the fires continue to rage, the aftermath goes beyond the immediate destruction of properties. The commercial real estate insurance landscape is undergoing a major shift. Property owners are facing not only rising premiums but also tighter coverage and changes to policy terms. In some cases, insurers are pulling out of high-risk areas altogether, leaving property owners scrambling to find insurance through secondary markets or taking proactive steps to mitigate risk.
The long-term economic effects on commercial real estate are likely to be significant, as insurers adapt their policies to account for the growing intensity of these fires. In the face of such uncertainty, finding ways to manage these insurance challenges is essential to safeguarding your property and the future of your business.
How Wildfires Are Impacting Commercial Real Estate Insurance
For years, California has been susceptible to wildfires. But the scale and frequency of these fires are now higher than ever. The risk is no longer something that’s just “possible”—it’s a constant threat. Insurers are not blind to this reality, and they are adjusting their policies accordingly.
Rising Premiums: A Challenge for Many Business Owners
The most immediate impact of California’s wildfire season is the rise in insurance premiums. For many commercial property owners, this has translated into significant increases in the cost of coverage. Insurance companies are becoming more cautious about insuring properties in high-risk zones, and as a result, premiums have surged. In some cases, commercial real estate owners in these areas are seeing their premiums double or triple.
While these price hikes are understandable given the heightened risks, they put added pressure on businesses that are already facing their own financial challenges. In many cases, it’s not just the price increase that’s difficult to bear—it’s the uncertainty of how high the costs will climb in future years. The wildfire season has exposed the delicate balance between keeping insurance coverage and maintaining financial stability.
Understanding How Insurers Assess Wildfire Risk
Insurance companies aren’t just raising prices arbitrarily—they are basing their decisions on specific factors that assess the risk of fire damage. These include things like the location of the property, how close it is to forests or areas with heavy vegetation, and the local firefighting infrastructure. The age of the building and its construction materials also play a major role in determining its risk level. For instance, older buildings or those made with materials that are more susceptible to fire will likely face higher premiums.
Even within California, certain areas are designated as “high-risk zones,” which leads insurers to increase premiums or place stricter limits on coverage. The more closely your property is located to these high-risk zones, the more likely it is that your premiums will rise. It’s a sobering reality that many commercial property owners are now facing.
Insurance Policy Changes and Exclusions
Along with rising premiums, many commercial property owners are discovering that their insurance policies are changing in ways that could leave them vulnerable in the event of a wildfire. Specifically, more insurance companies are incorporating wildfire exclusions into their policies.
These exclusions mean that property owners might not have coverage for fire damage unless they purchase special endorsements or add-ons. These add-ons, which can be quite costly, often come with additional limitations. Some insurers are also lowering their payouts for fire-related damage, which means that property owners could be left with large gaps in their coverage when they need it most.
The fine print of insurance policies is now more important than ever. As we continue to witness the devastation caused by wildfires, it’s critical to understand what’s covered—and what’s not—before disaster strikes. If your property is in a fire-prone area, the chances are high that your policy could look quite different in the future than it does today.
Steps You Can Take to Mitigate the Impact
While there’s no way to control the wildfires themselves, there are steps that commercial real estate owners can take to lessen the financial impact of these rising risks. Here are some ways to protect both your property and your bottom line:
1. Reduce Fire Risk on Your Property
One of the most effective ways to reduce your insurance premiums is by taking steps to mitigate the wildfire risk to your property. Creating defensible space around your building, clearing brush, and ensuring that your property is up to modern fire safety standards are all actions that can make a difference. Installing fire-resistant materials, such as fireproof roofs, siding, and windows, can also help reduce the chances of significant damage.
Insurance companies often offer discounts to property owners who make these improvements, so taking the time to implement fire safety measures can not only protect your property but also help you save money in the long run.
2. Work with a Real Estate Expert
Navigating the complexities of insurance policies, especially in the wake of heightened risks, can be overwhelming. That’s where a commercial real estate expert can make a difference.
At Segal Commercial, we know how challenging it can be for property owners in wildfire-prone areas like Los Angeles and San Jose. While we’re not an insurance provider, we can help you make sense of the risks, understand your options, and make choices that protect your property and your future. With years of experience in these communities, we’re dedicated to offering guidance and insights to support you through these uncertain times.
3. Shop Around for the Best Policy
With the insurance market changing rapidly, it’s more important than ever to compare policies from different providers. Each insurer has its own approach to wildfire risk, and premiums can vary widely. While it may take more time, shopping around can help you find the best coverage at the most reasonable price.
4. Consider Higher Deductibles or Special Coverage
In some cases, opting for a higher deductible in exchange for a lower premium can be a viable strategy. However, this comes with the risk of having to pay more out of pocket if the worst happens. You might also want to consider adding specialized coverage, like excess coverage or wildfire-specific endorsements, to fill in any gaps in your standard policy.
A Collaborative Effort to Protect Your Future
The wildfire crisis in California is not just a natural disaster—it’s an ongoing challenge that’s reshaping the commercial real estate landscape. By working together, we can help navigate these changes, protect your investments, and ensure that your commercial property remains secure.
At Segal Commercial, we’re here to support you every step of the way. If you need advice on how to protect your property, navigate insurance changes, or ensure that your coverage is adequate, don’t hesitate to reach out.
