Q: State Farm and Allstate have announced they will no longer sell new home insurance policies in California because of wildfire risks and an increase in construction costs. What does this mean for prospective homebuyers?
A: In certain high-risk areas of the state, there are very few insurance companies willing to write new policies. In some, State Farm was the last private insurance company writing policies. In those areas, the generally more-costly California FAIR plan may end up being the only property insurance available.
Q: How does this decision impact existing State Farm and Allstate policyholders?
A: State Farm and Allstate will continue to service and renew policies of existing clients in the state and offer new auto insurance policies. However, they will not be issuing any new property insurance policies for the time being in California.
Q: What will happen if more companies follow State Farm’s and Allstate’s moves?
A: There are still a wide range of companies writing policies in California. However, those willing to write new policies in higher risk areas are declining, and as stated above, with the departure of State Farm and Allstate, those in more high-risk areas may have no other option than the FAIR plan.
Q: What actions are being taken to improve the situation in the future? Any news regarding the Department of Insurance plans to encourage more carriers to write policies in California?
Many entities such as the nonprofit United Policyholders are maintaining regular dialogue with insurers to encourage them to recognize the value of wildfire risk reduction and resume insuring condos and homes located in the wildland-urban interface and suburban regions. The Department of Insurance also maintains dialogue with insurers on a regular basis and is consistently working to improve California FAIR Plan options.
Q: What is the California FAIR Plan and what options does it offer?
A: The California Fair Access to Insurance Requirements (FAIR) Plan provides basic fire insurance coverage for properties in high-risk areas as a “last resort” option when traditional insurance coverage is not available. A FAIR Plan policy offers protection from risk of fire and will satisfy a mortgage company’s requirement that your home be insured, but it doesn’t cover theft, flood, earthquake, hail, vandalism, or personal liability.
Q: What is the difference between admitted and non-admitted insurance companies? Should consumers consider non-admitted carriers?
When referring to insurers, the terms “admitted” or “non-admitted” indicate whether those companies are either fully or lightly regulated by the state’s insurance regulating agency. Many unfamiliar home insurers are non-admitted but may serve as a suitable coverage option, especially in areas where more well-known coverage options aren’t available. A good insurance broker can help inform you on whether a non-admitted carrier has the financial backing necessary to provide adequate coverage. You can also visit AM Best Rating Service to check the financial strength of an unknown brand.
Q: Should homeowners expect to pay higher premiums if fewer insurance companies are willing to write new policies?
Several factors have led to today’s challenging insurance market, which has, particularly in some areas of the state, contributed to higher premiums. The best way to avoid paying higher rates is to seek out a proactive, consumer-oriented agent or broker to help educate you on your options.
Q: Is it necessary to use an insurance agent or broker when shopping for home insurance? If so, how do I choose a good one?
A: If you’re insuring a home, business, or anything that’s unique, it’s generally advisable to find a good agent or broker to help you choose the right coverage. In assessing your options, make sure to seek out personal recommendations, online reviews, and obtain background information about licensed professionals via the California Department of Insurance website, which keeps track of registered insurance companies, agents, and brokers doing business in the state. For more help finding a broker, visit the United Policyholder’s online guidance, try the Department of Insurance’s Home Insurance Finder, or use the FAIR Plan’s Find a Broker tool.
Q: What questions should I ask when shopping for home insurance?
A: Asking good questions, trusting your instincts, and checking license statuses will help you avoid being scammed or overpaying for insurance. Some suggestions to ask when working with a broker or agent:
- How long have you been in business?
- Are you a “captive” agent, meaning that you exclusively represent one company? If not, how many companies do you represent?
- If I cancel the policy mid-term, will there be an “earned minimum” premium?
- If I have a loss and need to file a claim, how will you assist me?
- Is there a broker fee plus a commission, and if so, how much will the commission and fee be?
Q: What resources are available for homeowners in the event their insurance provider non-renews them?
A: If you are one of the many Californians whose insurance company has notified them they will not be renewing a policy on their home, don’t panic. First, your insurer must give you at least 75 days notice before your policy expires to issue a nonrenewal. You can also contact your provider to see if there are any actions you can take to qualify for a renewal. The California Department of Insurance (www.insurance.ca.gov) provides useful guidance for responding to non-renewal notifications and also provides several information guides, tips, and tools for understanding home/residential insurance. Plus, you can contact their Insurance Customer Hotline (800-927-HELP) for assistance. In the event the decision is not reversable, finding a good “independent” agent using the resources mentioned above can help you find and maintain adequate coverage you can afford.
Q: What is the mandatory one-year moratorium on non-renewals?
The one-year moratorium refers to Senate Bill 824 (2018), an important consumer protection law that requires a mandatory one-year moratorium on insurance companies cancelling or non-renewing residential insurance policies in certain areas within or adjacent to a fire perimeter after a declared state of emergency is issued by the Governor. The protection from cancellation or non-renewal lasts for one year from the date of the Governor’s emergency declaration. The law has been implemented following wildfires in 2019, 2020, 2021, and 2022. For more information or to find out if your ZIP code is included in the latest moratorium, visit the Department of Insurance or see the C.A.R. fire insurance resource.
Q: What are the restrictions on an insurance company’s right to terminate coverage or “non-renew” an existing policy following a wildfire?
If you live in a ZIP code protected under the one-year moratorium, your insurance company is prohibited from cancelling or non-renewing your residential insurance policy for one year from the date of the Governor’s emergency declaration following the fire. If your home was destroyed by a wildfire, your insurer must renew you for two years. An extension of up to 12 additional months, for a total of 36 months, should be granted if you encounter delays beyond your reasonable control. For more guidance on protections following a wildfire, visit the Department of Insurance’s Top Ten Tips for Wildfire Claimants.
Q: How do consumer protection laws in California impact minimum rights applicable to temporary relocation expenses and time to rebuild?
Your time to collect Additional Living Expense (ALE) reimbursement, including temporary rent and rebuilding expenses, after a declared catastrophe is no less than 24 months even if your policy says otherwise; however, your amount of coverage is not increased. According to the Department of Insurance, an extension of up to 12 additional months, for a total of 36 months, should be granted to cover ALE expenses if you encounter delays beyond your reasonable control. For more on what is and isn’t covered for wildfire claimants, visit the Department of Insurance’s website.
Q: What are some precautions to take to improve your home’s chances of surviving a wildfire?
A: When it comes to wildfire safety, every inch of a home is vulnerable due to several factors, including the possibility of fallen embers carried by the wind. As such, you’ll want to use ignition-resistant materials on and around your home to help it withstand such hazards and radiant heat. Also, be sure to create and maintain 100 feet of defensible space around your home. Defensible space is the buffer created by removing dead grass, plants, and weeds to help keep wildfires away. A quick guide on defensible space is available here. For additional useful guidance on fire safety, visit fire.ca.gov.
Q: What are some resources REALTORS® can offer their clients if they’re having a hard time, especially in a transaction?
Clients should know that many resources exist that are designed to help them make informed decisions when dealing with insurance. The Department of Insurance and United Policyholders websites contain a wealth of insurance knowledge and guidance and the Department of Insurance Customer Hotline (1-800-927-4357) connects clients directly to dedicated insurance experts ready to provide support when needed. In addition, a good insurance broker can help guide them in their search. Especially given the challenging conditions of the market, an experienced broker will have the know-how and background to help homebuyers find a policy with adequate coverage at a reasonable price. For help finding a broker, visit the United Policyholder’s online guidance, Department of Insurance’s Home Insurance Finder or use the FAIR Plan’s Find a Broker tool.
*The FAQs provided herein are for informational purposes only and not a substitute for legal advice. Your decision to select and contact an insurance provider should be based on your independent evaluation and in your sole discretion. Please visit the Department of Insurance and United Policyholders for further guidance.