For the first time, a state is letting property insurers sell homeowners’ policies that provide no coverage against wildfire damage.
Nevada’s experiment could become a national model for states struggling with rising insurance costs and scarcity in an era of climate change. The law was a bipartisan effort, approved unanimously last year by the Democratic-controlled Nevada Legislature and signed quickly by Republican Gov. Joe Lombardo.
Yet consumer advocates and the National Fire Protection Association, which sets national fire-safety standards, warn that policyholders could face financial catastrophe if they unknowingly decline wildfire coverage.
“I was shocked to find out that wildfire could be excluded,” Michele Steinberg, the association’s wildfire division director, said in an interview.
“If you’re a homeowner who doesn’t know much about insurance, which I argue most people don’t, we’re looking at folks assuming they had wildfire coverage and finding out they don’t,” Steinberg said. “It’s not a matter of, I lost the use of my kitchen for a month. You’re homeless.”
The law, effective Jan. 1, aims to contain insurance costs in Nevada by letting insurers reduce premiums with a wildfire exclusion. It expires at the end of 2029 and also lets insurers sell wildfire-only policies.
Other insurance exclusions have been widely embraced. Nineteen states along the Atlantic and Gulf coasts let property insurers exclude wind coverage under regulations added after Hurricane Andrew demolished areas of South Florida in 1992, according to the Insurance Information Institute.
More recently, as disasters of all types have cost insurers billions, California and Florida have revised their policies to help insurance companies be profitable and continue to cover disaster-prone areas.
Four insurance groups supported the Nevada measure, which applies only to wildfires and not other types of fires.
“If it ends up being a positive outcome, other states might start looking at it,” said Mark Sektnan, who runs government relations in Nevada and other Western states for the American Property Casualty Insurance Association.
In a recent webinar about insurance sponsored by the National Academies of Sciences, Engineering and Medicine, insurance expert Carolyn Kousky called the Nevada wildfire exclusion and wildfire-only policies “really harmful for consumers.”
“It is really unrealistic to think that people can go around and purchase multiple policies to stack up coverage,” said Kousky, whose nonprofit Insurance for Good seeks solutions to the property insurance crisis.
No insurer in Nevada has announced plans to sell policies that exclude wildfire coverage. The demand is unclear and will be limited because mortgage lenders routinely require insurance that includes wildfire coverage. Roughly 60 percent of the nation’s 86 million owner-occupied homes are subject to a mortgage, Census Bureau data shows.
Both Fannie Mae and Freddie Mac, which buy hundreds of thousands of mortgages a year, require their mortgaged properties to have insurance that covers 10 perils, including fire.
In Florida, 290,000 of the state’s 7.6 million property insurance policies — less than 4 percent — exclude wind coverage, according to state data.
Michael DeLong, research and advocacy associate at the Consumer Federation of America, called the Nevada law “an early prototype” and “a trend in insurance that is not good.”
“Insurance companies are trying to put in place policies that exclude certain natural disasters,” DeLong said.
‘Regulatory sandbox’
Unlike other states with exclusions, Nevada isn’t facing an insurance crisis.
The state has among the lowest homeowners’ premiums in the nation by various measures.
An April report by the Consumer Federation of America shows that Nevada’s average annual premium in 2024 — $1,555 — ranked 46th among states and was one-sixth the Florida average.
Insurance Information Institute data shows that in 2022, Nevada’s average premium ranked 49th. A Nevada official acknowledged the state’s low prices at a hearing on the wildfire exclusion bill last March.
“We have enjoyed some of the lowest rates in the West for a long time, and the state has been a profitable place for insurers,” Scott Kipper, who was then Nevada’s insurance commissioner, told state lawmakers.
Nor does Nevada have a major wildfire problem. It ranks 19th among states in the amount of fire-related disaster aid received from the Federal Emergency Management Agency, according to a POLITICO E&E News analysis of FEMA records. Nevada has received $25 million from FEMA for wildfires since 1998 compared to $6.8 billion given to California and $860 million to Oregon.
Nevada also lacks a state-chartered insurer that is required to sell coverage to residents unable to buy policies from a private company. The so-called insurers of last resort in California, Florida and Louisiana have absorbed hundreds of thousands of insurance policies in recent years as companies scaled back local underwriting — an option not available in Nevada.
But what Nevada does have is wealthy communities near Lake Tahoe on the state’s western edge, where spectacular forests create wildfire risks that insurers want to avoid.
In the summer of 2024, Kipper visited Incline Village, Nevada, where the average home price is $1.4 million, and heard desperate residents offer to forgo wildfire coverage if it enabled an insurer to write an otherwise-standard policy.
“The concept was to give insurers additional tools to help write the policies that, at least in Incline Village, the policyholders were looking for,” said Sektnan at the American Property Casualty Insurance Association.
“We heard loud and clear the challenges of getting insurance,” Kipper said during his March testimony. “Due to many factors including wildfire, many Nevadans are facing cancellations. Others can’t close [property] sales.”
Allowing wildfire exclusions will give insurers “a little more flexibility in order to generate the revenue they tell us is needed,” added Kipper, who helped write the legislation. “This is a great step forward to assist those consumers.”
The bill was supported by Sektnan’s group as well as the National Association of Mutual Insurance Companies, the Nevada Insurance Council, the Nevada Independent Insurance Agents and all 63 members of the state Legislature, including 40 Democrats and 23 Republicans.
One other supporter was Nevada Policy, a pro-business advocacy group that promotes free markets.
Nevada Policy is part of a growing ecosystem of libertarian advocates and think tanks that have spent a decade urging states to waive regulations and let businesses experiment with potentially innovative products. The insurance industry has been a target along with financial technology and, more recently, artificial intelligence.
The insurance legislation appealed to Nevada Policy not because of the wildfire exclusion but because it created a “regulatory sandbox” for the insurance industry to propose and test new technologies, operations and policies. Roughly 15 states have established regulatory sandboxes, which waive regulations for a set period of time, typically two or three years.
The goal of sandboxes “is to foster innovation and new products before you can make wholesale changes to a regulation,” said Sridhar Manyem, senior director of industry research and analytics at AM Best ratings company.
Nevada Policy Research Assistant Anahit Baghshetsyan told Nevada lawmakers that an insurance sandbox could lead to innovations such as on-demand insurance or automobile policies that set premiums using data from devices that track driving habits.
“Red tape can cause stagnation, deter competition and ultimately limit consumer choice,” Baghshetsyan testified. “These advancements have the potential to lower costs, increase efficiency, and provide better coverage options.”
