Insurance
USAA is the latest of insurers announcing property insurance changes for CA. Starting March of 2024, they will begin severely limiting new property policies in CA. Given the large population of active & retired or family of military and DOD service members, this is going to affect property sales.
Insurability is one of the investigation items during your investigation contingency. If you are Buying, you should bump this up in your list of priorities.
If you are Selling and your current insurance company has not dropped you, do not assume they will write a new policy on the house for the next Buyer. For example, State Farm is not necessarily dropping current property policyholders, but they are writing 0 new property policies in CA. Something we should discuss before listing if you are in a high fire zone.
CA Fair is the insurer of last resort, which means if you are forced onto a CA Fair plan, they only cover fire. You will need a second policy for everything else. This means since you only have 1 choice and costs will be dictated to you. Are you prepared for costs to go up exponentially year over year?
Sara Langer & I chatted about other major events impacting insurance policies in CA. Sara is an insurance agent with Comparion Insurance, which is owned by Liberty Mutual, and of which Safeco is apart of the family of companies that can write policies not only for their companies, but also for 20 other carriers in CA.
If you are Buying a home, more & more insurers are requiring property inspections to verify exterior condition. Some of them are DYI by submitting photos or a general home inspection report, or the insurer is sending out an inspector. Things that can be called out are missing shingles on a roof or overgrown vegetation on a roof line. This can affect the policy that you were quoted in escrow, as many of the insurance inspections are occurring after close.
If you are Buying a condo, master condo insurance policies are facing major challenges. Costs are rising quickly as some master HOA policies are getting dropped, and this will impact your ability to sell the condo, trigger special assessments & massive HOA due increases, or change what your HOA fees cover, etc.
Langer says that some HOAs are moving to liability only policies, and dwelling is being pushed onto individual condo owners. This means condo owners are having to take a single family policy. However, she indicated this is going to be problematic if the HOA/ condo doesn’t cover the dwelling because there will be shared structural components- everything from walls, rooflines, stucco, wood, plumbing, sewer, electrical plus shared infrastructure & amenities, and claims are likely going to be complicated in the event of a major loss in the structure
The majority of property owners in CA do not carry earthquake insurance. The most commonly known policy is through CEA which can be rigid in their options on coverage. However, Langer can offer other earthquake policies that allow you the flexibility of setting coverage limits for other items such as Loss of Use or Personal Items that CEA doesn’t. Additionally, they can offer coverage for pools or other structures that CEA doesn’t cover
Fire Hardening
As a result of the numerous insurance companies leaving CA or restricting new policies, the issue around fire risk, insurability, and the cost of insurance is going to, I suspect, increasingly impact property sales as the trend has been fewer options & higher costs.
In escrow, a Natural Hazard Disclosure report is a standard report that will be ordered and delivered to the Buyer, of which fire risk is one of the natural hazards that will be covered in the report.
San Diego and CA residential property transactions require the Fire Hardening Disclosure. If a property is in a high or very high fire zone, this must be disclosed by the Seller. The FHDS form is required in every residential sale.
In some CA counties, a completed inspection is required as part of the sale of the home. The official inspection is called AB 38 Defensible Space Inspection. As of this writing, in San Diego County, the inspection and compliance requirement is not required prior to sale, and can be passed onto the Buyer to complete. This may of course change as this issue becomes more pervasive.
The local fire department or the County can send you compliance notices even if you don’t request an inspection. If you own in a high fire zone or are considering property in a high fire zone, learn more about measures you can take for fire hardening and consider getting an inspection. Contact your city, local fire department or Cal Fire to learn more about inspections and what happens if your property doesn’t pass.
Unfortunately the AB 38 inspection can take time to schedule with the local responsible authority and more time to get a report back, so Buyers may not have this opportunity in escrow to conduct this due diligence.
I looked up a few addresses on both the City of San Diego’s site and Cal Fire’s site and the maps are different. To check the fire risk and whether your property requires an inspection anywhere in CA:
City of San Diego: https://www.sandiego.gov/fire/services/brush/severityzones
Cal Fire: https://egis.fire.ca.gov/FHSZ/
Request an inspection here:
City of San Diego: https://www.sandiego.gov/fire/services/ab38
Rest of the County, contact your local jurisdiction or Cal Fire: https://survey123.arcgis.com/share/e659f03a6e8447af8663e42cf48f60fd
Ultimately, insurance companies will be the deciding factor on how a property is classified for fire severity, what compliance they may require including requirements for fire hardening or routine inspections. Langer says every insurer has their own risk rating system so there is no universal rule that applies to how fire risk is rated, or how that impacts the cost of insurance. Cost of insurance is property specific, so you need to get quotes for every address even when properties are just blocks apart.