The reality of the crisis in the California property insurance market hit home last month when I was notified that the coverage on my home of 20 years was being canceled. This should not have been surprising to me given the exodus of carriers from the state due to untenable state insurance legislation, damage from wildfires and sky-high reconstruction costs. Yet, two things became quite clear… my choice of carriers was shrinking, and my annual premiums were growing. But enough about me… let’s look at the consequences for our housing market.
For buyers, what has historically been a minor “to do” while preparing an offer has overnight become a substantive deal point. In an environment where homeowners across the state are searching for new coverage, insurance agents have their hands full. In fact, it is not unusual to wait over a week for an answer about a property’s insurability. As a result, it is becoming more common to add an insurance contingency to an offer in order to determine what coverage is available and what if any physical improvements need to be made to secure coverage. Case in point… I recently sold a home in Piedmont where the insurance company required that the property be outfitted with an electronic leak detection system… admittedly, I didn’t see that coming. Selecting a Realtor who has a strong relationship with reputable local insurance agents and starting this process early is a major strategic advantage.
For sellers, merely pre-inspecting your home may not be sufficient to expect a non-contingent offer. Your claim history may further complicate the process. In addition, the recent and substantive rise in insurance premiums will impact your home’s affordability to prospective buyers. Working with a Realtor who is proactive at helping you seek coverage details to add to your disclosures may help buyers improve the terms of an offer and secure insurance on the property.
As much as I would like to give you hope that 2024 will see an improvement in the insurance environment, the near term remains uncertain due to a combination of longer-term issues including wildfire mitigation, flooding and the modernization of Proposition 103 (which governs property and casualty insurance rates). There are still carriers that are writing new policies including the California FAIR plan (that continues to be an option of last resort). Most homeowners who end up with the FAIR plan need to bundle it with another insurance carrier for additional coverage in order to replicate what they originally had. Although I was taken by surprise when my insurance was canceled, with a little homework, I had a new policy in place a couple weeks later…… at over a 35% increase in cost.
As the year ends and I contemplate the full range of emotions it evokes, I look to 2024 with a renewed sense of gratitude for my family, friends, associates, and those of you who have entrusted me to represent you in your real estate activities.
I wish you a healthy and happy New Year!