The Days of Using your Insurance Policy to Replace a Fallen Fence are Over

I’m writing today with crucial updates on California's insurance landscape, hoping to provide strategies for mitigating the impact on your household.

In short: The past few years have brought a surge of claims statewide due to fires, floods, backed up sewers, downed trees, and more, leading to a noticeable rise in insurance rates, and, as I like to call it, 'insurance sensitivity'. Big players like AIG, Chubb, AllState, and State Farm have ceased writing new policies in California, with rumors that Farmers could follow suit.

What does this mean for you? Going forward, options for new policies will be more limited. However, if you're already holding an active homeowner's policy with an insurance company in California, it's grandfathered in - with caveats: Even a single claim could spike your premiums or lead to a complete cancellation, regardless of how long you've been dutifully paying your premiums.

According to my agent at State Farm, the largest insurer in California, they’ve been paying out five dollars for every three they take in, leading to a reported loss of 6.7 billion dollars in 2022, compared to a gain of 1.3 billion in 2021.

Furthermore, many Californian regions are have a high 'fire score rating' (a measure you can obtain only through your insurance broker). This includes Marin, San Francisco, and San Mateo counties. If you lose coverage in these high fire risk areas, the California FAIR Plan may offer some support, but only for "actual cash value", not replacement cost, and maxes out at 3 million, including personal property. Underinsured? There's no partial payment, so be cautious not to underinsure when using Cal FAIR, lest you find yourself at net zero after depreciation deductions.

In light of these changes, here are a few tips to help you maintain your insurance health:

1. View Homeowner’s Fire and Liability Insurance as a resource for catastrophic events only. Aim for property replacement cost coverage based on substantial or complete loss, rather than minor incidents.
2. Be aware that your home's value and the cost to replace it are not the same. The sale price doesn't factor in.
3. Keep your deductible high (at 1% of your replacement coverage). It will help you save on premium costs year over year.
4. Don't make claims for minor events. Making claims under 1% or 2% of your policy can increase premiums or lead to cancellation.
5. You may be asked to make repairs or updates – or be declined.
6. Consider purchasing additional policies. An Umbrella Liability policy, for example, can offer 2MM of coverage for around $300 per year.
7. HOA considerations; be sure to review the insurance policy annually for properly adjusted coverage, especially if you are in a high fire rated location, potential flooding and ask about earthquake insurance expense.

Remember, these are just key pointers. The California FAIR Plan is only a last resort for those unable to obtain insurance. Companies do offer significant premium discounts for not making claims over a long period, so keep that in mind. Note that there's no specific coverage for mudslides, but some cases involving mudslides may be covered under flood insurance.

This is an evolving situation, and insurance companies are actively negotiating with the state to modify AB2756, potentially improving coverage through CA FAIR. I am not an insurance expert, so I encourage you to ask specific questions of your broker. Still, I cannot emphasize enough how important it is not to make any insurance claims that are not financially necessary; you will be risking non-renewal or increased rates.

My hope is that these notes will help you find comprehensive, cost-effective coverage. And as always, contact me anytime, I am here to support you in making your home safe, comfortable and a place for making good memories.

Wishing us all a worry-free summer.