State Farm, California’s largest insurer, announced this week they are further pulling back from insuring property in CA.
If you haven’t read about the number of insurance companies that have stopped writing new policies on property, start here:
And here:
State Farm is dropping all 42,000 commercial apartment policies, effectively exiting the multi family/apartment market, which they will notify the policyholders in August this year.
I haven’t read if this impacts HOA master insurance policies, but some of those policies are getting dropped, so if your HOA’s master policy is with State Farm, this is a conversation to be had now.
They are also dropping 30,000 homeowners and rental policies and will notify those owners in July.
If you are in a hire fire or natural disaster zone you should start shopping for insurance options.
Countless people on Twitter have indicated their insurance costs have dramatically risen multi-fold over the past few years as numerous folks have been dropped and had to go shop for remaining options, which are ever shrinking.
This is going to impact property sales, and in some cases, may force Sellers who own income property or face financial distress to sell.
The biggest challenge going forward is for new Buyers. Many of us who have insurance through carriers that have announced they are no longer writing new policies, have been ok for now or have not seen dramatic increases in insurance costs because the CA Insurance Commissioner has to approve all insurance rate hikes on existing policies.
However, when Property Owners go to Sell, the Buyer may struggle to find new insurance through carriers that are still writing policies, or be forced to CA Fair and those costs may be exorbitant.
As long as the Buyer has a mortgage, they will be required to have property insurance. If you are underwriting a new purchase of multi-family, forecasting significant increases in insurance cost over the years would be prudent. More than ever, location location location is going to be a major consideration.
While fire has been a known risk, often less discussed are the coastal zones which may be more prone to flooding or impacted by ocean levels rising. Years ago before State Farm exited writing new policies, they had stopped writing new property policies within a certain distance of the ocean. Even if the property you’re interested in does not have a history of flooding, if insurance companies set policies to stop writing new policies within certain coastal zones entirely, this will certainly impact values.
Floods and mudslides are not typically covered under standard property policies, unless additional coverage is obtained. If you do not have a separate earthquake policy, you can investigate your options with your current insurer. The 2 options I’m aware of are CEA and Palomar.
If you own or are buying a condo, you should assume your condo does not have earthquake insurance and read the HOA documents and contact the HOA to inquire. You should also discuss this with your insurance agent to understand if there are additional policies or riders you can take.
If you want to understand how our insurance rates are impacted by the CA Insurance Commissioner, read up on how they regulate the industry. In talking to a few corporate insurance friends including an insurance actuary, they have indicated a huge part of the problem has been CA government’s unwillingness to allow insurers to charge risk based premiums. In other words, if property owners buy in high disaster areas, they should pay a lot more. By limiting their ability to price, insurers have instead chosen to exit the market which results in fewer consumer choices which is counterproductive to the goal of limiting insurance costs and a disaster in the making with property owners ability to obtain mortgages, buy and sell property.