Could California be the next state to face an insurance crisis?
The Golden State is facing 'an untenable situation, potentially affecting millions of California homeowners.'
In response to skyrocketing condo-insurance premiums in California, several state legislators recently penned a letter encouraging Insurance Commissioner Ricardo Lara to take action in support of residents struggling to find affordable insurance.
“As you know all too well, the homeowners’ insurance market in California is experiencing severe disruption due to increased climate-related risks, particularly wildfires,” reads the letter dated Feb. 6, 2023, and signed by 18 state senators. “Homeowners association (HOA) communities and residents of condominium developments in wildland-urban interface (WUI) areas of the state are facing particular difficulty accessing coverage because of the high concentration of risk.”
Condominium owners in California are experiencing increased difficulty securing coverage with some carriers refusing to renew policies while others drastically increase premiums and lower coverage limits.
“Constituents have reported special assessments of thousands of dollars per year, and in some cases, premiums of nearly $1,000 per unit, per month just to maintain the master policy of their housing development,” the legislators wrote. “This is an untenable situation, potentially affecting millions of California homeowners.”
In response, elected officials are calling on the California Department of Insurance to increase the California FAIR Plan commercial coverage limits from $8.4 million to $20 million, the San Diego Union Tribune reports. The FAIR Plan is a pooled risk program supported by all state-licensed property insurers. It was designed to provide a temporary safety net of basic fire coverage when regular insurance becomes hard to find in the marketplace.
That is increasingly becoming the situation for California homeowners in general and condo owners in particular. In January, for instance, Farmers Insurance declined to renew the property policy for Morada, a 338-unit condo community in Rancho Bernardo, according to The San Diego Union Tribune. Under last year’s policy, the HOA bought $73 million in coverage for $133,000.
When the association shopped for a replacement policy this year, the best it could find was $10 million in coverage on the secondary insurance market for $885,000 a year.
The development’s Homeowner’s Association has explored bringing its coverage level up to $80 million — roughly equivalent to last year’s policy given increased construction costs. The premium price tag would be $2.68 million, The San Diego Union Tribune reports. That would require a special assessment on average of $8,000 per unit for Morada’s homeowners.
“Obviously, we are in a bad position unless we can find some other way” to secure insurance, Sam Spooner, an 85-year-old resident at Morada told The San Diego Union Tribune. “Eight thousand dollars per unit… is a stab in the gut.”
Commissioner Lara responded to the lawmakers’ letter with a post on social media.
“Expanded coverage options for HOAs and community associations, including a stronger FAIR Plan, is a top priority for my new term,” he wrote. “We have to hold insurance companies accountable to covering Californians. We want them to be part of the solution, not the problem, and work with us to protect homeowners and businesses.”
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