Homeowners’ Insurance on the Mind and Agenda

The Montecito Association (MA) held its monthly board meeting on June 11 in person at the Montecito Community Hall. The agenda was Homeowners Insurance Availability and Solutions. The presenters were Kelly Weiser from The Weiser Agency and Grace Neumann, Managing Director of HUB International. In lieu of a formal presentation, MA Executive Director Houghton Hyatt, opened a Q&A with MA questions, and then took inquiries from the board and public. 

MA.How does Hub International help clients with insurance?

There are two ways to write insurance in California, the admitted carriers, and the non-admitted carriers – which a lot of businesses are going toward in Montecito. 

We do everything we can to make this challenging market easier for our clients – the different types of carriers we have access to, and the ways carriers are doing things now.

Priorities – decide what you want covered and paid for – structure, contents…

Choosing different deductibles – e.g. choosing to have a $1 million wildfire deductible and $250,000 general deductible costs $60,000 less for insurance than the standard $20,000 deductible.

Carriers are now layering policies: One company may take the first $3 million and the next company take the next $2 million. [This is] more common on home insurance in the last two to three years.

MA.What factors are crucial to assess a property’s insurability?

Fire risk – What is the fire line score of the property, tree limbs, fire protection or flammables around the house itself? Cypress trees on the property and bark mulch within five feet serve to blacklist the property as not insurable.

Market saturation – How many homes are insured on the same road/block? How wide is the street for a fire truck access?

Condos are more difficult to insure than homes today. 

Occupancy of the property – rentals are harder to insure than private or second homes.

MA. Solutions and strategies for property insurance?

When we go to the underwriters and close, we want to make sure we have the best picture of the property – e.g. there are alarms, there are water and gas shutoffs, backup generator – so we have an in-depth discussion with the client first. 

It’s important to have everything upfront so you do not have to go back to the underwriters.

Insurance companies red light people who go price-shopping brokers – they will decline coverage.

Be mindful that most of the time if you receive a renewal offer it is likely better than new options available today. After we review it, we make recommendations to work with their existing broker to lower the premium. 

MJ.A property insured for over 25 years goes on the market and the new buyer can’t get it insured…?

It is true, once they sell the house it is brand new underwriting for any carrier. We are back to the same strategies as a new policy. 

The insurance carrier does not renew it for the new buyer because they do not want to write new business in California – they are limiting their exposure. If it’s good exposure they may stay on it, like the perfect house in the middle of the town; but if there’s any chance they can get off of it, that’s their opportunity to do so. The carrier, though, has to list a reason they will not insure it. 

MJ.Do you suggest people have à la carte policies for their property?

It depends. If the property is super high value, has no fire or flood issues, it’s a primary residence and they fit the mold really well – we can still get them coverage through Farmers, or another admitted carrier. For a rebuild value of $15 million or above, clients can prefer different policies for the structure, liability, and personal property.

MJ.Is a separate policy for the Accessory Dwelling Unit (ADU)/rental required?

Many times, the ADU can be covered under the same policy if the address is the same as the main property.

MA. What’s the distinction between the California Fair Plan (CFP) Insurance vs. Other insurance?

CFP max insured is $3 million that will pay the dwelling, other structures, loss of use, very basic fire policy – smoke, lightning, fire. They have $300 billion exposure in CA and $200 million in the bank, so it’s very risky. In addition, you need a Difference in Conditions Policy to cover what the CFP does not – liability, water, and theft. 

It can be a good plan depending on the client’s risk tolerance and the reconstruction value of the property. Not ideal for Montecito. Some clients protect their property in other ways and will augment with the CFP. We recommend working with a broker, not with CFP directly. There are layers you can add to the CFP, in increments of a million dollars. Lloyds of London and non-admitted companies will write those layers.

We recommend going with an admitted company like Farmers, and can’t with confidence recommend the CFP.

MA. Are insurance companies coming back to California?

Non-admitted carriers are coming back. AIG now has a private select group and is starting to come back. Admitted carriers are trying to figure out what part of the risk they are willing to take on. Admitted carriers are regulated by the State of CA and if they become insolvent, they still have to pay out the claims. Non-admitted can charge whatever price they want, and if they go bankrupt, they are not obligated to pay the clients back – check AM Best and Standard & Poor’s insurance ratings.

MA.How are condos insured?

Condos are more difficult to insure now; we have to use the non-admitted companies in those cases. It is still affordable. HOAs are struggling to get the condo structures insured, because many carriers decided they are less interested in those policies. Ask the HOA about their insurance policies before you buy a condo. State Farm is cancelling 43,000 HOA structures in CA in the next year.

MA. How would you describe the future of insurance coverage?

Some carriers will only insure structures $10 million and above. Movement and trends, particularly for high-end homes in Montecito, are very cyclical. There is lots of political pressure on the Dept. of Insurance. Realistically, no positive changes should be expected in the next year, though Montecito is better positioned than most to have access to the solutions as they become available.  

411: www.montecitoassociation.org