California enjoyed a comparatively mild wildfire season in 2019, but it wasn’t enough to save Bobbi Pimentel’s homeowners’ insurance policy.

Pimentel and her husband, who live in a rural area 30 miles east of Redding, Calif., got the dreaded notice in late November: Horace Mann Educators Corp., which has insured their property for 13 years, wouldn’t renew their policy. Pimentel, who’s still looking for new coverage, fears her premiums could triple, costing her thousands of dollars.

“I just don’t understand how they can do that,” said Pimentel, 77. “They don’t mind taking our money but they’re not covering anything.” A company spokeswoman wouldn’t discuss Pimentel’s case but said Horace Mann has paid out $157 million in California wildfire claims since 2017.

The insurance crisis in California wildfire country is showing few signs of abating. Rural residents are losing coverage, rates are shooting up and experts say the problem defies easy remedies.

California’s continuing woes can be traced in part to a collection of mostly foreign companies that have become increasingly nervous about the widespread havoc caused by the state’s wildfires.

These companies sell reinsurance. That’s insurance purchased by other insurance companies that are offloading some of the financial risks of a major catastrophe.

Reinsurance companies — unknown to most Californians, typically headquartered in such far-flung locales as Bermuda and Zurich — are a quiet but powerful force in the state’s insurance market. The availability of reinsurance enables better-known primary carriers such as Farmers and State Farm to keep writing coverage in wooded foothill communities where wildfire danger lurks.

Now the relationship between reinsurance and primary carriers is beginning to fray. The wildfires of 2017 and 2018 caused $25 billion in damage. Billions in claims landed in the laps of reinsurance companies that had largely overlooked wildfires as major calamities.

Stunned by their losses, many reinsurance companies have begun scaling back their coverage in the state and jacking up the rates they charge the primary carriers. Not subject to rate regulation by the California Department of Insurance, some reinsurers are raising prices as much as 70 percent, according to a report last summer by market analyst S&P Global Ratings.

That, in turn, puts more pressure on the primary insurance companies. They have to get approval from the Department of Insurance to increase premium rates on homeowners. But the department won’t include the cost of reinsurance in the rate-making calculations.

Caught in that regulatory bind, primary carriers have little choice but to reduce the number of policies they underwrite, said Rex Frazier of the Personal Insurance Federation of California.

“You have to (reduce) your risk profile to match your revenue,” said Frazier, whose association lobbies for some of the major primary insurers.

Frazier said reinsurance companies used to gloss over wildfire dangers when selling coverage to his federation’s members. Now they’re scrutinizing wildfire risks like never before.

“It used to be, ‘Tell me about your Florida hurricane risk.’ Now it’s, ‘Please show me your modeled losses for your California wildfire risk,’ ” Frazier said.

Insurance companies have been dealing with plenty of high-cost disasters in the past few years. Large swaths of Australia are burning. Major worldwide catastrophes — from Hurricane Michael in Florida to Typhoon Jebi in Japan to the Camp Fire in Paradise — caused an estimated $219 billion in damage in 2017 and 2018, according to Swiss Re Ltd., the world’s largest reinsurance provider. It was the costliest two-year run of disasters ever recorded, the company said.

Some disasters are so destructive, they force the government to take the place of private insurance. The federal government sells flood insurance. Floridians buy hurricane insurance from a not-for-profit established by their Legislature.

And more than 1 million Californians get earthquake insurance from the not-for-profit California Earthquake Authority. It was created after the 1994 Northridge earthquake sparked a statewide insurance crisis. California law required homeowners’ insurers to offer earthquake coverage. Rather than risk another Northridge — which caused $10 billion in covered losses — insurers started pulling back from coverage altogether.

Nobody’s yet suggested the creation of a similar authority for wildfires. But Californians in fire-prone areas are continuing to lose coverage — despite the absence of major disasters in 2019, hundreds of millions of dollars in new fire-safety expenditures by the Legislature and an emergency order from regulators halting policy cancellations in certain parts of the state for a year.

Reinsurance executives say California still hasn’t turned the corner on wildfire safety.

Mark Bove, a meteorologist and catastrophe solutions manager at Munich Re, a German company that’s the world’s second-largest seller of reinsurance, said climate change, population growth in fire-prone areas and other factors are continuing to drive up the risk of doing business in California.

“We are happy for the residents of California that 2019 was much milder,” Bove said. But “the whole entire insurance and reinsurance industry still feel wildfire is a very significant, emerging risk in California. One relatively quiet year ... does not change that fact.”

>> California wildfires now a major ‘peril’

Until recently, the reinsurance industry trained most of its brainpower — its computerized risk-analysis modeling — on what it considered “first-tier perils” such as earthquakes, tornadoes and hurricanes. Wildfires were considered a lesser danger. Then came the fires of 2017 and 2018, killing more than 100 people, destroying much of Paradise — and forcing the industry to take a fresh look at its models.

Perhaps most shocking was the Tubbs Fire in 2017, which swept through urban Santa Rosa neighborhoods that were thought to be at a safe remove from meaningful risk.

“Those risk-selection tools that everyone was using were called into question,” said Doug May, president of Willis Re, a reinsurance broker and consultant based in New York. “They didn’t appear to be particularly effective, especially for wind-driven wildfire.”

Reinsurers are developing new forecasting tools, and are giving California wildfires the respect they deserve.

“California wildfires have emerged as a first-tier US catastrophe peril,” Moody’s Investors Service declared in a report last summer. Hiscox Re, a reinsurance company based in Bermuda and London, said in a white paper that the industry must recognize wildfire “as a serial offender.”

Zurich-based Swiss Re — the world’s largest reinsurer, with $36 billion in annual premiums — lost $775 million on California wildfires over the two years.

Everest Re, out of Bermuda, took a $450 million beating on the Camp and Woolsey fires in 2018. A French reinsurance company called SCOR racked up more than $200 million in losses in 2017-18.

When 2019 came and went with just one major wildfire, the Kincade Fire in Sonoma County, much of the reinsurance industry was not reassured.

In its annual summary of global insurance disasters, Munich Re said the 2019 result “does not change the sharply rising long-term trend” toward major fires. Bove, the company meteorologist, said that while industry-wide losses came to just $1 billion last year, that still placed 2019 among the costliest years in California wildfire history.

The end result is reinsurance is getting pricier and harder to find, which translates into less coverage available for California homeowners, said Mark Sektnan, vice president of the American Property Casualty Insurance Association.

“The reinsurers are saying they’re only going to take ‘X’ amount of risk,” said Sektnan, who represents primary insurers. “So you need to figure out which policies you’re not going to cover.”

>> Crisis for rural homeowners

Homeowners’ insurance is an $8 billion-a-year business in California. The vast majority of Californians have little trouble getting affordable coverage. The average policy — about $1,000 a year — is almost 20 percent below the national average, according to 2016 data from the Insurance Information Institute.

But in areas considered prone to wildfire, the situation has turned nightmarish. Starting with the 2015 Butte Fire in Amador and Calaveras counties, and ending with the November 2018 Camp Fire in Paradise, the insurance industry has lost roughly $25 billion to California’s wildfires. The industry’s response: Nearly 350,000 rural Californians lost their policies from 2015 to 2018, according to state data.

Tens of thousands of homeowners have had to resort to coverage from unregulated “surplus” carriers like Lloyd’s of London or the California FAIR Plan, the state’s “insurer of last resort.” The FAIR Plan alone added 22,000 homeowners to its rolls during a 12-month span ending last August, according to a report to the Legislature.

The FAIR Plan is subject to rate regulation by the state. But it’s considered a less-than-ideal alternative for homeowners. It offers bare-bones policies and doesn’t cover perils like theft, forcing customers to get “wrap-around” insurance to fill out their coverage.

Bottom line: Homeowners who used to pay about $2,000 a year for coverage can find themselves paying $6,000 or more. While urban Californians who live outside of wildfire danger are immune, it’s become an all-consuming issue in wooded foothill regions and other fire-prone areas of the state. In some places, the lack of affordable insurance is causing the real estate market to dry up.

So many homeowners have been forced onto the FAIR Plan lately, the insurer of last resort is now worried about becoming overburdened. Last fall Insurance Commissioner Ricardo Lara ordered the FAIR Plan to start offering full-fledged insurance coverage, in addition to its bare-bones policies.

The FAIR Plan — which was created by the state after insurers abandoned inner cities following the 1960s riots — responded by taking Lara to court. The plan is funded by insurers and doesn’t receive tax subsidies.

The impact of Lara’s other big order remains unclear. In December the commissioner imposed a one-year moratorium prohibiting carriers from dropping homeowners living in and around the major fires that occurred in 2019 — a move that protects about 1 million homeowners. Lara had the authority to order the moratorium under SB 824, a bill he authored while in the Legislature in 2018.

The commissioner also asked insurers halt cancellations for a year in the rest of the state as well. So far no company has agreed to it, but “we continue to be in discussions” with insurers about Lara’s request, said Department of Insurance spokesman Michael Soller.

Randy Fletcher, a Marysville insurance agent, said Lara’s efforts are falling short. Until the state does more to reduce underlying wildfire dangers, he said insurance carriers will remain reluctant to underwrite coverage in wooded areas.

“They’re telling me, show me proof it’s safer and profitable to write in the forests,” said Fletcher, a Yuba County supervisor whose district bore the brunt of the 2017 Cascade Fire. “The solution isn’t from the insurance commissioner putting a one-year band-aid (on the problem).”

Soller acknowledged the moratorium isn’t a remedy but is designed to give “breathing room for consumers” while more long-lasting solutions are developed. Those include more intensified efforts by the state to reduce wildfire risks — and then finding ways to get insurers to make coverage more available.

“We’re going to push for a stronger commitment from insurers to write policies in wildfire communities, to address this non-renewal issue,” Soller said.

In the meantime, insurance carriers insist California also needs to raise premium rates.

Frazier said the Department of Insurance has kept premiums artificially low over the years. Companies are loathed to seek rate increases of more than 6.9 percent because that’s the threshold that triggers hearings that could last a year or longer, he said. At the same time, he said the companies are prohibited in California from incorporating reinsurance costs into their rate-hike requests.

“Companies can’t match the risk to price,” Frazier said. “Why are we acting surprised that there are non-renewals in the high-risk areas?

“(Regulators) are trying to shield people from big price disruptions and that’s understandable,” he added. “But if they push too hard, the insurance system doesn’t have enough money to insure everybody.”

Soller said the primary carriers have gotten plenty of rate relief — the department approved rate increases totaling $388 million a year in 2018 alone. “It’s not accurate to say the department has put a lid (on rate hikes),” he said.

Michael Wara, who runs the Stanford climate and energy program and has been advising lawmakers on wildfire issues, said any substantive fix for the insurance market is going to need insurance executives “at the table.” But he said questions about political donations from insurers to Lara’s political campaigns “makes it harder” for the commissioner to hold those discussions.

Soller disputed that. “He’s going to continue to do the work of meeting with consumers, meeting with the industry, really as the voice of California homeowners,” the department spokesman said.