This week's Coldwell Banker business meeting focused heavily on insurance and the difficulty/inability to obtain homeowners' insurance in California. In what has become an all-too-common practice of denying insurance to homes in the hills (aka the "fire zone"), rejecting prospective homeowners' new coverage is quickly becoming the norm instead of the exception - irrespective of where you live. Mark Hoogs, our local State Farm Agent, updated us on how we got here and what is needed to navigate the new normal.
At the end of May 2023, State Farm announced it would stop selling home insurance policies in California due to "historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market." Farmers Insurance is also limiting new homeowner insurance in California. Allstate Insurance, the fourth largest carrier in California, just confirmed it stopped issuing new homeowner policies last year.
There are several reasons for this trend, including:
- Wildfire risk: California is one of the most wildfire-prone states in the country. In recent years, there have been several devastating wildfires that have caused billions of dollars in damage. This has made it increasingly difficult and expensive for insurers to cover homes and businesses in California.
- Rising construction costs: Rebuilding homes and businesses after a wildfire has increased significantly recently. This is due to several factors, including the rising cost of materials and labor.
- Challenging reinsurance market: Reinsurance is insurance that insurers buy to protect themselves against significant losses. The reinsurance market has been challenging in recent years due to several factors, including natural disasters' increasing frequency and severity.
This matters a great deal:
- IF YOU ARE BUYING A HOME
Lenders require proof of insurance before funding. Without insurance, there's no loan; if the loan is denied for lack of insurance, closing the transaction is problematic. When you finally manage to secure insurance via the California Fair Plan, it's likely to be much more expensive.
Be cautious before writing a "non-contingent" offer on a property; ensure you can get homeowners' insurance before submitting your purchase agreement. Remember, insurance is never a promise; it's merely a quote, so you may want to keep that contingency in place until the close of escrow.
- IF YOU ALREADY OWN A HOME
Insurance companies may cancel a policy at ANY time, whether the homeowner has ever made or been paid out on a legitimate claim. It's important to understand that your annual premium is just that: a yearly contract that comes up for renewal once a year; at this point, the insurance company may issue a notice to cancel your coverage with NO CAUSE unilaterally.
Additionally, suppose you've made a claim (or even inquired about making one). In that case, you will likely receive a ding on your record, even if the claim was unrelated to your house, even if it was denied, and even if the insurance companies never provided one red cent, forcing you to shoulder the repairs and the responsibilities for the fix.
"Insurance insures both the property and the individual, so you want to think twice before inquiring and avoid a claim for anything less than the $5,000—standard deductible. Additionally, a previous residence claim could impact insurance pricing or availability on your next home.
Areas of concern that may raise your cost or make you ineligible are:
- Certain Electrical Panel Brands
- Knob and Tube, cloth-covered electrical wiring
- Large overhanging trees, roofs older than 20 years old, plantings up against the house, previous claims
- IF YOU ALREADY OWN A CONDO
Your HOA (home owners association) is facing challenges getting insurance from a narrowing field of companies charging substantially higher premiums.
By the fourth quarter of 2023, the FAIR Plan is boosting its insurance policy availability to $20 million per location. The action, a first in nearly two decades for the FAIR Plan, came after wildfires wiped out thousands of homes in California and caused many insurers to balk at coverage in high-fire-risk communities.
The plan likely can’t solve every condo association’s insurance gap. But perhaps it will provide enough additional insurance to cover HOAs with smaller replacement coverage gaps.
Many thanks to Mark Hoogs for his expertise. Mark can be reached at [email protected] or 925-254-3344 should you need insurance in any town in and around Orinda, Lafayette, Moraga, Walnut Creek, Alamo, or Pleasant Hill.
- United Policyholders Webinar, register here.
- California FAIR plan
- California Department of Insurance
