Last week Californians took another economic hit just before the fire season, as both State Farm and AllState said they will stop selling homeowners insurance in California.
State Farm attributed the decision to three factors: “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.” Reinsurance is a method of transferring some of an insurer’s risk to other insurers.
Allstate also blamed wildfires and higher costs, saying, “The cost to insure new home customers in California is far higher than the price they would pay for policies.”
The impact of this latest decision by these two major casualty insurance carriers will have serious implications to a state notorious for its high housing costs, where homeowners spend more than 30% of their income in housing costs.
For example, consider those who live in homeowners associations, like condos, who just on February of this year had their policies dropped entirely, and the new options are significantly higher:
More condo owners are coming forward to report Farmers Insurance has not renewed their property insurance due to wildfire risk.Residents in the 338-unit Morada condo complex may now be looking at thousands of dollars in special assessments to get insurance on the secondary market.CBS 8 spoke to a Morada resident who did not want to be identified because he feared retaliation from Farmers Insurance.
My wife and I have been here for more than a decade,” he said.Because the condos are connected, the complex needs a single master property insurance policy of about $80 million. Farmers canceled the policy for the entire complex, including coverage for wildfire damage. “They have prepared some proprietary wildfire maps of their own, which they don’t disclose. And it indicates that many of these condominium complexes are in extreme wildfire risk zones,” said the Morada resident.
The owner said the complex’s HOA found a temporary policy on the secondary market for the first quarter of 2023, but residents are worried the special assessment could be about $2,500; that’s on top of the $500 per month each condo owner pays in HOA fees.
Right now, we have a policy because we have a mortgage. It’s essential that we have a master policy in place that’s going to cover wildfire damage, and the bank insists on that to have collateral for their mortgage,” said the resident.
Condo owners started contacting CBS 8 last month about Farmers Insurance canceling policies, including 320 condos in Tierrasanta, 240 condos in Rancho Penasquitos, and perhaps hundreds more across the state.
Because cancellations raise insurance costs, the price of housing also increases.
So, this problem will, in my mind, create homelessness in the not-too-distant future,” the Morada resident said.
Finally, these cancellations promise to put more pressure on California’s FAIR plan, a state-run scheme to provide coverage to those who can’t obtain protection from private insurers.
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