The news that State Farm and Allstate will stop writing new homeowner’s policies in California sent shock-waves through the state. Citing increased exposure to catastrophic weather events and escalating construction costs, both carriers said they couldn’t keep their rate increases under the state-regulated caps and still operate profitably.
While the California Department of Insurance characterizes the situation as “temporary,” there is little evidence to support that assertion. The wildfire outlook appears bleak across the west, and other weather events driven by climate change—from intense tropical storms to frequent sunny day flooding to widespread droughts—won’t abate any time soon.
In the face of this dire situation, what can homeowners in California and other western states do? At B. F. Saul Insurance, we’re advising clients to take three critical steps:
- Be open to non-traditional options. As standard homeowner’s policies become tougher to obtain, homeowners should consider non-admitted policies. The coverage is customized to each property, so the policy tends to take longer to underwrite and quote, and it’s not backed by a guarantee fund the way a standard policy is, so you’ll have no recourse if the insurer becomes insolvent. But a non-admitted policy could be a better alternative to the basic coverage offered by the California FAIR plan. If you expect to purchase a home in the western US soon, talk to your broker about insurance as early as possible to ensure you can obtain a policy before settlement.
- Make your home more insurable. The more measures you take to reduce your exposure to extreme weather, the more attractive your home will be to insurers. By upgrading to fire-resistant roofing, installing attic vents that keep embers from blowing into your home, adding an automatic water detection and shutoff system, and keeping brush far from any buildings, you’ll find coverage easier to obtain and your premiums less extreme.
- Write to your legislators. Like any business, insurers can’t be expected to operate unprofitably. But when regulators take a rigid stance on rate increases, they’re effectively telling carriers their only option is to do just that. When insurers choose to exit the market instead, the rate increase caps intended to protect consumers have the opposite effect. California residents should encourage their legislators to better serve their interests by allowing carriers to increase their rates in line with their risks. Faced with the choice of higher premiums or a lack of coverage, I would venture to bet that most homeowners would prefer the former over the latter.
Lanie Raphael is a seasoned insurance professional with over 30 years of experience in the industry, with experience in both commercial and high-net-worth insurance. Throughout her career, Lanie has held executive-level roles at prominent insurance companies such as Fireman's Fund, AIG, and ACE Private Risk Service in a variety of disciplines including risk management, product development, operations, and marketing. In the past decade, she transitioned to the independent agency side, assuming leadership roles that involved direct client interaction and working closely with referral sources. As president, she is responsible for leading all aspects of financial reporting and budgeting, business development, and executive recruiting at B. F. Saul Insurance.
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