Property owners across the state are still reeling after State Farm and Allstate insurance companies announced that they would no longer be writing new homeowners policies in California due to increased risk of natural disasters and rising construction costs.
The companies are among California's major home insurance providers and their withdrawal will likely impact homeowners, homebuilders and would-be home buyers, according to local Realtors in Silicon Valley.
State Farm General Insurance Company announced on May 26 that it would cease accepting new applications, including all business, homeowners and casualty insurance, effective immediately. State Farm said it made this decision "due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure due to climate change, and a challenging reinsurance market (insurance for insurance companies)."
Just days later, Allstate followed suit with a similar announcement stating the company had "paused" its offerings so it could "continue to protect current customers." Allstate had actually stopped issuing new policies in California in November 2022 during its third quarter earnings report, but did not make a public announcement until June 2. These two companies were not the first to scale back their policies. American International Group (AIG) notified thousands in California that their policies would not be renewed last year.
"Many of the problems in California are a result of the increasing risks in certain areas of the state, in part due to climate change," said Jim Hamilton, president of the Silicon Valley Association of Realtors. "The increased risk of fires and floods in more areas have put a strain on both the companies and potentially on the FAIR Plan, which is California’s insurer of last resort."
The California Fair Access to Insurance Requirements (FAIR) Plan Association was established to meet the needs of California homeowners unable to find insurance in the traditional marketplace and provides basic fire insurance coverage for high-risk properties.
Hamilton said the California Association of Realtors has information and resources for those who are affected by these recent developments. He shared these tips from the association:
Know your rights
If your insurance company is not going to renew the policy on your home, it must notify you in writing at least 45 days before the expiration date. If you didn’t receive the proper notice, contact the Department of Insurance or call its Customer Hotline at 1-800-927-HELP. Check to see if your policy has a guaranteed renewal provision. You also may be entitled to a renewal under laws applicable to homes that are lost in a declared disaster.
Contact your insurance company ASAP
If you live in a wildfire zone and receive notice of a rate increase or nonrenewal, get in touch with your insurance company ASAP to see if there are steps you can take to prepare your home for wildfire, also known as "fire hardening," that could change the company’s decision.
Work with an insurance agent
Filling out applications and getting quotes takes time. Working with an insurance agent can speed things up. The Consumers section on the California Department of Insurance site has a tool to help you find insurance agents and brokers near you. Check to see if an agent works exclusively with one insurance company or has access to multiple carriers. Keep track of which insurance companies are being contacted to make sure you're conducting a thorough search of all options. Look for "admitted" insurance companies, also called standard carriers, which are companies that must follow all state regulations and are backed by the Insurance Guarantee Association, which provides protections if the carrier becomes insolvent. Check the Residential Insurance Contact List on the DOI website for a list of admitted insurance companies.
Make sure you are not underinsured
Before selecting a policy, make sure it will cover the likely cost to rebuild your home in compliance with current building codes. Consider insuring your property for replacement cost value -- what it will actually cost to rebuild your home -- not just depreciated, actual cash value, which is what your home was worth before it was damaged.
Compare types of coverage and limits
If you have any questions, ask your insurance agent. For example: Will the policy cover the cost of rebuilding your home to its pre-loss condition? Does it cover demolition and debris removal? Is there a coverage limit on temporary rent and expenses while the home is being repaired? What causes of loss are not covered?
Check 'surplus lines' options if necessary
Surplus lines carriers (aka “non-admitted” carriers) do not follow the same state regulations that standard carriers do and therefore do not have the protections provided by the California Insurance Guarantee Association. This means they often have more flexible offerings and may be the best solution. If you can’t obtain insurance from an admitted carrier, consider a surplus lines one; just make sure to investigate the overall financial strength by checking a credit rating agency focused on the insurance industry, such as A.M. Best.
Use the FAIR Plan as a last resort
If you’re out of options, contact California FAIR Plan. The FAIR Plan policy is a state-mandated program that offers access to insurance coverage for individuals with high-risk properties. The FAIR Plan can be expensive, and it only covers certain losses by fire and smoke, so you will need to buy Differences in Conditions (DIC) insurance to cover other perils such as theft and liability.
United Policyholders, a nonprofit that provides insurance information and resources, can help you find insurance in high-risk areas. The association also offers a free webinar titled, "Keeping your home protected when insurance options are limited and expensive" on its website.
Silicon Valley Association of Realtors (SILVAR) is a professional trade organization representing 5,000 Realtors and affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term Realtor is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of Realtors and who subscribes to its strict Code of Ethics.
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