We are sending this email to inform you of the growing insurance crisis in California and to equip you with knowledge about what you can do to protect yourself. Similar issues are occurring all over the country. Please share it with your friends and family.
THE PROBLEM
- It’s well-known that in the last four years California is the consistent victim of raging wildfires, that cause billions of dollars in damages every year.
- Destructive wildfires in 2017 meant California insurers paid more than $2 for every $1 they collected in premiums according to state officials and, unfortunately, it hasn’t gotten any better since then. Insurers have paid out between $11B-$26B in damages every year since 2017.
- In addition to this, insurance companies are being limited in how they can mitigate their own risk to shield themselves from bankruptcy amid the increasingly large volume of annual payouts.
- Proposition 103 prohibits insurance premium increases not approved by the CA Dept of Insurance
- The CA Insurance commissioner has placed several moratoriums on cancelling business near fire zones. While that helps current policy holders, it creates a situation in which carriers are wary of writing business they may be stuck with.
- In response to these roadblocks, insurers are finding other legal avenues to decrease their liability by: o Imposing New Business Moratoriums – meaning they are no longer writing new policies or taking on new business in high-risk areas.
- Expanding their definition of what is considered a high-risk area. Places that were once considered “safe” (suburban sprawl) are now being considered high-risk.
- Since insurance companies cannot cancel policies in fire zones due to the Insurance Commissioner’s moratorium, they are finding every legal opportunity to drop policies.
OUR ADVICE TO YOU
❖ TAKE ACTION TO SAFEGUARD YOUR HOME FROM FIRES
- Clear vegetation
- Install gutter guards and narrow mesh venting
- High deductibles: increasing the deductibles on your policy incentivizes insurance companies to maintain your policy
- Pay attention to inspection reports and your insurance carrier’s suggestions
❖ DON’T GET DROPPED!
- No small claims! Making insurance claims for small amounts and damages gives the insurance companies more reason to drop or not renew a policy. For many of these claims, it might be smarter to simply pay the damages out-of-pocket rather than risk being dropped from your insurance provider.
- Do not lapse a policy
- Pay on time – Do not let an expired credit card cause a lapse in automated payments
OTHER CRITICAL ISSUES
❖ ORDINANCE & LAW (BUILDING CODE UPGRADES) SUBLIMITS
- When a home is rebuilt, builders are required to build the new home in accordance with current code. This involves upgrading aspects of the home to align with building code requirements that have been enacted since the house was built.
- These code upgrades are considered a separate cause of loss in a home. This means that a specific insurance endorsement is needed to cover these costs, separate from the fire, flooding, or other loss protection covered by a property and casualty insurance policy. This specific insurance endorsement is known as Ordinance and Law (O&L) insurance.
- Some property and casualty insurance policies already offer underwriting for these O&L upgrades. Insurance policies typically express the O&L sublimit as a % of the Dwelling Coverage (often 10%, 25%, 50% or 100%)
- For example, if you have dwelling coverage of $1 million and 25% O&L, you would be covered up to 25% of that $1M, or $250k. Therefore, if building upgrades cost $400k, you would be responsible for covering the remaining $150k out of pocket.
- Recent statewide building code upgrades from the California Legislature have pushed building code upgrades to much higher percentage of the rebuilding cost- the older the home, the more O&L you are likely to have.
- Any costs incurred above your O&L percentage, you become responsible to cover outof-pocket. These costs can accumulate quickly, which is why it is important that you are aware of your current O&L coverage and that you are sufficiently insured. We recommend O&L of at least 50% for homes that are 20-40 years old. Consider more if your home is older. Newer homes could be okay with 25-30% for now, but you need to increase it as your home ages. Depending on the cost, you may just want to do 50% now.
❖ SEWER BACKUP
- Check your policy’s coverage regarding sewage cleanup.
- Many carriers are providing extremely limited coverage or none at all.
- Sewage claims are expensive:
- It’s typically Emergency clean up (overtime hours) o Clean up is a laborious process ▪ All porous materials must be removed
- Remaining materials go through Enzyme treatments
- Work is performed certified by Environmental Hygienist o Exposed/damaged property is replaced o Home is usually uninhabitable and therefore involves costs for Loss of Use
- Don’t let yourself get stuck in a stinky house!! Talk to your insurance professional about your sewer backup coverage.