For years most insurance carriers have tried to limit their exposure in California because of our reputation for multiple earthquake faults which represents a significant risk factor for carriers. Then came the significant fires. And then came the great exodus during the second half of 2023 when most major carriers left this state! Carriers claim that they have lost significant amounts of money in California given the convergence of natural disasters and a high cost of both labor and materials.
At this point obtaining new policies for buyers has become a significant hurdle in the purchase process. Insurance brokers are reporting that at least 15 business days are required to obtain a policy commitment. This has forced buyers to include a contingency to obtain insurance, changing the former (risky) practice of non-contingent offers which had been the norm in this part of the East Bay for decades.
For some background about the beginning of the major shift , this original article from Bankrate gives a good overview of the shift that began in fall of 2022; if you haven’t already read it, you may find it helpful. For those wishing to take a deep dive into the t
—It’s not just about high fire areas: it’s important to note that folks in all areas are impacted. I have clients in the flats of Berkeley as well as El Cerrito who have had their policies cancelled, and are seeking alternatives.
—While fire risk has exacerbated the problem, California and the Bay Area in particular have been problematic for insurance companies for many years because of earthquake risk. Then as the article points out, the exceptionally high construction costs here in the Bay Area, at their worst since the pandemic and inflation increases, make us a very unattractive risk area.
—Each carrier has been particularly “allergic” to a type of risk for some time. I remember 7-8 years ago encountering the fact that Farmers Insurance hated any and all water claims, including those involving irrigation issues. State Farm and AAA were much less sensitive to water, but were firm that there should be ZERO knob-and-tube wiring for new policies. And K&T is now a very difficult condition for any home seeking a new policy. A month ago there were a couple of non-standard carriers most of us had never heard of, such as Alive, Bamboo, Goosehead and Foremost that would still cover K & T. A month ago Bamboo and Goosehead were out. As I write this I’ve been informed by my favorite broker that there are no carriers currently writing new policies for homes with ANY active knob and tube wiring.
—Timing matters. A client recently purchased a duplex on Spruce Street, which closed the third week of the month. Farmer’s had provided a quote for us when we were writing the offer. But each carrier has a limit to the number of new policies they will write in California per month. The quota was now full. So the broker we used was able to find a short-term (yes, expensive) solution for a few weeks, and got him into a long-term policy at the beginning of the month.
—A four point inspection is now being requested by many carriers. The four areas are electrical (no knob and tube), plumbing (no galvanized piping), roof (no shake roofs), and for many foundation (with a requirement for earthquake retrofitting).
—Any water claim against a home may trigger the requirement for a whole-house water leak detection system. These require an active wifi system for operation and monitoring.
Things that current homeowners need to be prepared for, some of which you might address proactively:
—remove any remaining Knob-and-Tube wiring, and make sure to get documentation from your electrician.
—fire hardening will become increasingly important. Whether we like it or not, having at least a five-foot clearance, and ideally 10 feet or more from our homes is going to be essential.
—Physical inspections by carriers are likely to become more common. One set of clients were able to get their insurance reinstated by Travelers by getting a new home inspection which showed that their home had no maintenance issues, and that all systems were updated at least to an acceptable standard.
—think twice (or three times!) about filing a claim. I know, that’s why we pay for insurance! But right now, any claim can be the prompt for a carrier to cancel you, where you might otherwise have remained off their radar. And know that if you picked up the phone or got online with a representative to discuss your desire to be reimbursed for legitimate damage or repairs, that counts as a “claim,” even if you did not actually file a form. And both you and your property are going to be dinged on the C.L.U.E. Report. C.L.U.E. stands for “comprehensive loss underwriting exchange.” C.L.U.E. reports disclose the detailed claims history for a person or a property. (
To request a C.L.U.E. report of your own home or auto history, click here. You are entitled to a free C.L.U.E. report once each year.)