California’s Homeowners Insurance Exodus: Are You Covered?

• Why? It’s a combination of the increasing natural disasters combined with inflation in the labor market and the cost of building materials. The costs of claims have gone up significantly in the past few years and the insurance companies couldn’t charge enough to cover them, due to the insurance commissioner’s rate moratorium. Together, these factors have caused major insurance companies to exit the state.

• What is the impact? The remaining companies like AAA, Mercury and USAA will reach capacity soon and won’t have the reserves to insure larger properties. Homes with a replacement cost of $2M+ will be the hardest to insure. The type of occupancy will make a big difference because insurers will prioritize primary residences over second homes or investment properties.

• What about the California Fair Plan? The Fair Plan provides Californians basic fire coverage when this coverage is not available from a traditional carrier. It’s intended to be a temporary safety net until a traditional carrier becomes available. It’s very expensive and has a limit of around $2M for the home value.

• What does the future of insurance look like in California? There is a lack of available and affordable homeowners insurance due to increasing losses due to climate change. Most companies are spending more money on claims and operating expenses than they are receiving in premiums. If you are getting a loan to purchase a property, you must have homeowners insurance. If the cost of the insurance is high, it might impact buyers ability to qualify for a loan. California needs regulatory reform to resolve this crisis.

• How do you navigate this issue?

Buyers: It’s crucial to get a homeowners insurance quote before writing an offer on a property AND include a contingency to protect yourself if you can’t obtain affordable homeowners insurance.

Sellers: Just because you have insurance doesn’t mean the company will issue a policy to the new owners. When I’m representing sellers, I provide at least one homeowners insurance quote in the disclosure package. That way the buyers know they have an option… or worst case scenario, we know that we’ll need to get creative if it’s a difficult property to insure. It’s important to do the work up front and provide the info so potential buyers feel confident in writing an offer.

Current homeowners: Pay your policy on time and don’t file a homeowners insurance claim unless it’s absolutely necessary. If you do get dropped by your insurance company, reach out to me for insurance broker recommendations.

Whether you’re buying or selling in Granite Bay or Loomis, I’ll make sure you have a competitive edge.