Why Can’t I Get Home Insurance for my California Home?

The California home insurance market changed dramatically at the beginning of 2019 and has evolved into the hardest market on record. Thirty thousand homes burned to the ground during the wildfires of 2017 and 2018. The 2018 wildfire season was the deadliest ever recorded in California and a total of 8,527 fires burned almost 1,900,000 total acres. While still in the middle of wildfire season, 2020 has already set a record as the most destructive wildfire burning 4% of the state’s land.

In 2019 the California legislature passed a dozen new consumer protection laws to assist wildfire victims, which shifted more of the financial burden to the insurance companies. As examples, home insurers must now:

  • Pay for a home to be rebuilt at the current location or new location, or pay to purchase an already built home at a new location.
  • Pay for an additional 12 months of living expenses.
  • Combine all property coverages into one pool of funds to rebuild or replace the damaged or destroyed dwelling.
  • Offer a renewal after a declared disaster (wildfire).
  • Not cancel or refuse to renew a policy of any home located in any ZIP Code within or adjacent to the fire perimeter, based solely on wildfire risk.

Because of the large numbers of homes burned at one time, the rebuilding costs have skyrocketed, as materials and skilled labor are in demand. Many home insurers offer additional limits of coverage as part of their policy, with some even doubling the dwelling limit. The insurance companies pay for the family to live in a comparable home while their home is being rebuilt and it is not unusual to take two to three years to rebuild after a large wildfire.

As a result of the large wildfire losses, increased rebuilding costs, new legislation and uncertainty over future legislation, many home insurers have found California to be an unfriendly and unprofitable state in which to do business. Some insurers are not writing any new property policies in California at this time.

Those that are writing new business have severely tightened their underwriting, choosing not to add any new homes that are close to open space, have had a prior claim or that are older (and haven’t fully updated their plumbing, heating or electrical systems). Insurers are also actively trying to spread their risk, meaning they don’t want to insure too many homes on the same neighborhood.

The first choice for home insurance is always an admitted company, such as Chubb, Cincinnati, PURE, Travelers and Safeco. If no admitted companies will offer coverage, agents can offer policies from non-admitted, or surplus lines, companies such as Scottsdale or Lexington. As a last resort, a policy can be purchased from the California Fair Plan. This policy only covers loss from the risk of fire, smoke or explosion. A second, Differences-In-Conditions policy must be purchased to offer coverage for losses due to water, wind and the other main perils. The Fair Plan also has a limit of $3,000,000 for total insurance, meaning the dwelling, other structures, personal property and loss of use combined cannot exceed this limit.

Sadly, not much is expected to change in the next year. Existing homeowners can expect to see consistent rate increases, brush surcharges and the risk of cancellation if they file a claim. New buyers are finding it difficult to find coverage at a reasonable rate for homes located in brushy areas. Homeowners can improve their situation by making their home as fire proof as possible, not filing small claims, increasing their deductible, updating plumbing, electrical and heating systems and adding protective devices like an automatic water shut off device, automatic earthquake shut off valve, and an alarm system.

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