By Corey Chambers
Condo and HOA communities in California are facing a severe and escalating crisis concerning insurance coverage, particularly related to fire risks. Insurers are becoming increasingly cautious, leading to challenges in securing coverage. This blog aims to shed light on the problem and offers insights for community members and decision-makers.
The Crisis in California
The most significant issue affecting California communities is the complex landscape of fire insurance. Insurers in California operate under the Standard Fire Policy (SFP) framework, a named-peril policy last significantly revised in 1943. This archaic system doesn’t allow underwriters to exclude wildfires, leading to a mounting reluctance in providing coverage, especially in high-risk zones. Insurance companies find themselves restricted in their capacity to adjust rates, requiring legislative changes to alleviate the situation.
The Role of Excess and Surplus Lines
With preferred carriers stepping back, the only viable alternative for many communities has become Excess and Surplus (E&S) markets. These non-admitted insurers are not bound by California’s stringent regulatory landscape. However, with a surge in submissions, even these E&S carriers are becoming pickier about whom they insure. Risk scores, previously as high as 40 or 50, are now capped at 20 or 30, which makes it difficult for communities to secure quotes.
Factors Affecting Insurance Quotes
Insurance quotes are influenced by various elements like the presence of fire sprinklers, location, and the proactive monitoring of fire risks. Communities with sophisticated safety measures and strategic geographical positions stand a better chance at securing insurance quotes.
Another pressing issue is the rising cost of post-disaster rebuilding, leading insurers to bump up their premiums and leaving communities grappling with financial strain. In some cases, communities are forced into special assessments or find themselves underinsured.
The Case for Self-Insurance
The notion of self-insurance has been floated, but for most communities, it remains a non-starter. Governing documents typically mandate the acquisition of insurance. Moreover, the California FAIR Plan, a carrier of last resort, offers limited coverage—capping at $5.6 million—which is not enough for larger communities.
Legislative Intervention
A lasting solution to the insurance crisis in California will likely necessitate legislative action. The current standard fire policy framework is overdue for an overhaul. The legislature has a pivotal role in resolving this issue, but the comprehensive solution may take up to two or three years to come into effect.
A Call to Action
The California condo and HOA insurance landscape is riddled with complexities and challenges. Community members, decision-makers, and legislators need to join forces to navigate this crisis and advocate for sustainable changes.
Request a Free Report
If you are dealing with insurance woes in your community, request a free report from us to explore your options and understand the intricacies of the situation better.
Copyright © This free information provided courtesy L.A. Loft Blog with information provided by Corey Chambers, Broker DRE 01889449. We are not associated with the seller, homeowner’s association or developer. The information in this blog post is intended solely for informational purposes and should not be considered as professional advice. Consult with legal and insurance professionals for advice tailored to your specific situation. For more information, contact 213-880-9910 or visit LALoftBlog.com Licensed in California. All information provided is deemed reliable but is not guaranteed and should be independently verified. Text and photos created or modified by artificial intelligence. Properties subject to prior sale or rental. This is not a solicitation if buyer or seller is already under contract with another broker.
