Farmers Insurance announced Monday that California regulators have approved its plan to assess wildfire risk by using a tool that combines artificial intelligence with high-resolution aerial photography.
The carrier said the Z-Fire risk scoring model developed by Zesty.ai is expected to make standard coverage available to an additional 30,000 homeowners.
Farmers is the first carrier in California to submit underwriting guidelines that allow it to assess a home’s wildfire risk by using site-specific factors such as the use of fire-resistant building materials, said Deputy Insurance Commissioner Michael Soller.
Soller said the initiative fits in with Insurance Commissioner Ricardo Lara’s effort to get insurers to use more sophisticated methods of assessing risk so that homeowners are given incentives to take prevention measures, such as clearing vegetation and using fire-resistant materials. The Insurance Department in February announced proposed regulations that would create incentives for community wildfire mitigation initiatives and make coverage more affordable to homeowners who have invested in prevention measures.
“What Commissioner Lara wants to see is risk scores that reflect home-hardening actions that are really proven to prevent wildfire from catching your home on fire and spreading to other homes,” Soller said.
Many homeowners in California’s high-risk areas cannot find property insurance outside of the residual market, called the California FAIR plan. A report by the Department of Insurance last October shows that number of California homeowner policies that insurers refused to renew jumped 31% to 235,250 in 2019 from 179,458 in 2018. At the same time, the number of policies issued through the FAIR plan climbed to 190,196 from 140,138.
Farmers’ new risk scoring plan comes as California begins a new fire season amid severe drought conditions that elevate the wildfire risk even further. A report by Zesty.ai says much of the U.S. West is suffering from an extreme drought and all but a sliver of California’s north coast line is in an abnormally dry or drought condition.
Zesty.ai founder and Chief Executive Officer Attila Toth said wildfires have caused $57 billion in economic losses and killed 194 people in the past five years.
Toth explained how Zesty.ai can use geospatial analysis to better predict risk for individual properties during a videotaped industry conference last November. He said out of approximately 10 million California residential properties in the Zesty.ai database, about 1.2 million are in a high-hazard area. Each year, wildfires destroy an average of 2,876 residential structures in those high-risk zones.
Zesty.ai’s collection of high-resolution images is able to detect the presence of vegetation on properties and whether that vegetation hangs over residential structures. The images can also detect whether the roof is shingle or tile. The database includes information on the year of construction, so that the system will be aware if a structure was built after 2008, when fire-resistant construction methods were mandated by an update to the state’s building code, he said. Also, the perimeters of previous wildfires are inputted into the system because research has shown that wildfires tend to burn in the same areas.
Zesty.ai compared photos of properties before a wildfire and afterward to determine which structures were destroyed, which were only partially damaged and which were unscathed. Using that data, the company determined that clearing vegetation from within 30 feet of a structure reduces the risk of wildfire destruction by 22%. A tile roof also reduces risk by 22%. Updating to the 2008 building code reduces risk by 12%, while removing overhanging vegetation reduces wildfire risk by 6%, Toth said.
Farmers said it will use Z-Fire to determine eligibility, but the data will not be used for determining rates.
“We are looking forward to leveraging Zesty.ai’s risk model to help open up the standard homeowners insurance market for tens of thousands of homes in many parts of the state previously deemed uninsurable in the standard market,” Farmers spokeswoman Marika Bastrmajian said in an email.
Farmers, headquartered in Los Angeles, was the second-largest provider of homeowner’s insurance in California in 2020, behind State Farm, according to Department of Insurance data. Farmers reported $1.5 billion in direct written premium from the homeowners line, a 23% market share.
About the photo: In this Nov. 18, 2020 file photo taken by a drone, residences destroyed by the Mountain View Fire line a street in the Walker community in Mono County, Calif. As consecutive years of catastrophic wildfires drive up the cost of insuring homes across California, state regulators announced on Monday, Feb. 8, 2021, a step toward creating incentives for retrofitting older homes to make them more resilient to fires. (AP Photo/Noah Berger, File)
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