Nevada County Appraisal Blog's Fire Insurance Analysis 2019
Hi all- Becky Hindt here- I’m the office manager for Sierra Nevada Appraisal Group. After receiving dozens of questions (from clients and friends alike) about the state of fire insurance in our area, Brian and I decided we should dig into this topic and make it the focus of a blog post. In the wake of the catastrophic California wildfires of the last few years, specifically the devastating Camp Fire in Paradise, Nevada County homeowners are finding themselves being dropped from their insurance companies or are seeing rates sharply increase. As temperatures rise and vegetation continues to dry out, homeowners are scrambling for coverage as well as answers. Recently, Brian conducted several interviews with local real estate and insurance professionals to gather as much information as possible on the current state of fire insurance in our area.
We all know that insuring our valuable assets, whether car, home, or personal items, is important in the case of destruction or theft. We want to know we will be able to replace our property in the event of a catastrophe. Lenders also want to know they will be able to get their money back if something happens to the asset they are loaning on. This is why lenders require homeowner's insurance. Typically, a homeowner’s insurance policy will cover any damages to your home caused by fire. However, with the ever-increasing threat of wildfires in California, many insurance companies aren’t renewing policies in high-risk areas like ours.
Unfortunately, insurance companies that are providing policies are drastically raising their premium prices, as Movement Mortgage lender, Heidi Seavers, attested when she spoke about rising monthly premiums. “I can count on one hand the policies I had in the last two years that were $3000, but now, I can count on one hand how many policies I’ve gotten in the last six months that were less than $900… there has been one.” According to Ms. Seavers, the pre-Camp Fire policies she saw in the $3000 range were justified in their pricing; perhaps the home was very rural or far from resources like fire stations. But now, even residents within the city limits are struggling to find insurance. There is a big red ‘X’ on much of Nevada County, and few are exempt.
All this gets more complicated when looking at how insurances companies operate, specifically, how they set their prices and determine who or where to insure. According to a local insurance agent, Mike Bratton, in addition to physical conditions like lack of rain, insurance companies have found themselves unable to charge appropriate premiums due to limits set by the California Insurance Commissioner. Basically, insurance companies aren’t able to charge what they feel they need to, given the high risk of our area, due to regulatory caps on rates. The rate increases homeowners are seeing (if they are lucky enough to be insured), is more of a sticker-shock since California has very low rates compared to the rest of the country. “We have something like the forty-fourth cheapest homeowner’s rates in the nation, and it doesn’t make sense because the cost of construction is probably in the top two or three. There is just no parody there,” says Mr. Bratton.
Ryan Harris, another Nevada County-based insurance agent with Harris Insurance Services, supplements this point by noting that most admitted insurance companies (those governed by the California Department of Insurance), are nationwide companies and are not based in California where they are subject to regulation. When catastrophic events occur, and the insurance companies file for rate increases to cover their higher risk, the insurance commissioner looks at how profitable the company is nationally and denies their rate increase petition. This leads companies to withdraw from areas or continue to offer insurance without fire coverage.
Harris goes on to explain that even non-admitted companies like Lloyd’s of London, are starting to view California as a catastrophic state, and have begun to raise rates. Because they are not regulated by the state, there are no laws capping rate increases for non-admitted markets. When admitted companies pull out, non-admitted companies can fill the vacuum with elevated prices and decreased coverage. Many homeowners have no choice but to fall back on plans from Lloyd’s or the state-provided California FAIR Plan.
The FAIR Plan has been getting a lot of buzz in this area lately since it is the only option for many homeowners to be insured for fire. According to their website, it is an “insurance pool established to assure the availability of basic property insurance to people who own insurable property in the State of California and who, beyond their control, have been unable to obtain insurance in the voluntary insurance market.” Created in 1968, the FAIR Plan has been a last resort for California homeowners to obtain insurance for perils like wildfire, windstorms, or internal explosion. Insurance and real estate professionals (and even the FAIR Plan’s website) emphasize that the FAIR Plan should be a last resort. It typically covers less and costs more than policies provided on the open market. In addition, a second policy known as a difference in condition or wrap policy is needed to cover the remainder of what the FAIR Plan does not. While having fire coverage through the FAIR Plan will lower wrap policy premiums, the FAIR Plan rates can reach as high as $8000 in some rural areas like North San Juan, according to local lender Stan Oparowski, with Northern California Mortgage.
A close friend and Rough and Ready resident has been updating me on her efforts to obtain insurance. After exhausting all other avenues, she will be settling on a FAIR Plan policy paired with a wrap policy from either AAA or Aegis. Like so many others this spring, she received the 60-day notice from her insurance company notifying they would no longer be covering her home. She has had to come to terms with paying almost two and a half times as much for less coverage this coming year. Having been evacuated due to the threat of the Lobo Fire last year, she knows how important adequate coverage is.
Where does all this leave Nevada County residents in the coming months and years? What can homeowners do to protect their properties without going bankrupt? Unfortunately, it is hard to know for sure. According to Mr. Bratton, all insurance companies are different in how they asses risk. Some companies want to see “pride of ownership” when they inspect a property. Are pine needles raked up? Is the grass green? Is there junk piled around the dwelling? Are railings and decks safe and secure? Sometimes this can be the difference between a thumbs up and thumbs down from an insurer. On the other hand, and what we are seeing with insurance companies now, entire areas are deemed too risky to insure, no matter how clean and safe an individual property is. Mr. Bratton is hopeful, though. “In the next two to three years, I think this problem will get better because I think the Insurance Commissioner’s office will help with appropriate rates… if you let the insurance companies try to grow their businesses, they are going to be competitive against each other. With that being said, expect rates on homeowners’ policies to go up over the next couple years.” He continues, “things have to change in order for us to get back to where the realtors can feel good about listing a house and selling a house and knowing that it’s going to close escrow because we can find insurance for it, because right now, I know that’s a problem.”
Mr. Harris agrees that the rate increase approvals will help. “If the admitted markets can get the rate approvals they need, it’s going to get better- it's going to create competition [and] lower exposure from the non-admitted markets.” He is cautiously optimistic, however, saying that our current situation could be the new normal. “If [insurance companies] can’t get the rate increase, the California FAIR Plan is going to be just like earthquake insurance; you are going to have to buy it separately, and every admitted market will exclude fire coverage from their policies.” Perhaps it is a wait-and-see situation. However, if yet another large fire strikes close to home this year, it is hard to imagine a scenario in which insurance doesn’t continue to increase or become harder to obtain. The Camp Fire, after all, was the last straw for a lot of insurance companies, according to Harris. It seems like all homeowners can do in the meantime, is continue to diligently research coverage, and really start to familiarize themselves with the FAIR Plan if they haven’t already.
Hopefully, this post provides some answers or insight into the current situation in Nevada County and other California communities. I’ve compiled some key points of advice based on the information received from the professionals featured in this blog:
If you are trying to buy a house, understand what insurance you can get first as this may affect your buying power significantly.
Be wary of generic computerized quote calculators online. We live in a very complex area in terms of real estate, and the generic tools available online that might work well for getting a quote in Roseville, may not be accurate here. With that said, if you find yourself resorting to the FAIR Plan, their website’s online calculator can help give you quick ballpark estimates based on the different additional coverage options you may want. That tool can be found at here.
Shop through a local broker who is familiar with the area.
Continue to review and call around. Coverage and policies change from time to time, so options may become available. If you currently have a good policy, STAY WITH IT!
Take video or pictures of personal property, so you know exactly what you have in case of destruction. Go through and document all rooms, closets, cabinets, etc. Save it to the Cloud or have a second copy that is not stored in your home.
Take care of your property! Maintaining defensible space around your home, cleaning debris from roofs, and maintaining your irrigation system are just a few steps you can take to make your property more fire safe.