When Ernest Hemingway was asked how he went bankrupt his response was “Two ways. Gradually, then suddenly.” I am going to suggest that California is becoming uninsurable the same way, gradually at first but then all at once.
When I first entered the insurance business in 2002 the only homes that could not be insured were those also used as a gambling parlor, built on stilts hanging over the ocean or home to a pet tiger. Fast forward to 2023, huge parts of Hidden Hills, Calabasas, Agoura Hills, Westlake Village, the western part of West Hills, etc. are largely uninsurable. Obviously, insurance companies are not eager to insure a home surrounded by dry kindling, but now insurance companies are declining homes more than a mile away from the nearest brush or wildfire areas. What gives?
There are two issues fanning the flames (no pun intended) of the current insurance crisis and these issues are causing a big headache for Californians well beyond home insurance, runaway litigation, and the way in which our state regulates insurance.
The first issue is the litigious nature of our state. When the Woolsey Fire happened in 2018, a massive number of families were adversely affected, many of which lost their homes. For those families legitimately affected, most insurance companies stepped up and paid the claim. For insurance companies that did not step up, those bad actors should lose their ability to offer insurance in California. However, many insurance companies were inundated with claims that were not meant to be covered or just plain fraudulent. One example is smoke claims for homes over 10 miles from the fire. We had home insurance customers in Van Nuys, Reseda, and Sherman Oaks file claims for a fire in Agoura that they only read about and never actually saw. These claims were often handled by law firms flying planes over the San Fernando Valley with a banner reading “Smokeclaims.com” or sending postcards to pretty much every homeowner within 25 miles of the fire. Insurance premiums are not calculated based on paying claims for nonsense and that’s exactly what these smoke claims were, nonsense. Insurance companies spent billions of dollars on these smoke claims alone just for the Woolsey Fire.
The second issue creating a very challenging home insurance marketplace is the way in which our insurance market is regulated. The Department of Insurance has the power to regulate rates on many types of property insurance for “admitted” companies, the power to ensure carriers are solvent and the power to step in when a claim is not paid. There is no question all three of those items are important. Insurance companies should not be allowed to price gouge, they must be financially able to pay claims and they must pay claims as promised. On that last part, that’s all insurance is at the end of the day – a promise. You promise to pay your premium and be truthful on an application; the carrier makes a promise to abide by the insurance contract and pay your claim for something that is covered in that contract. That last part is where carriers have been stung. Over the past few years insurance companies have been asked to pay mudslide claims on a fire policy, pay more than policy limits, or forced to offer or continue coverage in neighborhoods that have become just too dangerous to insure. Forcing insurance companies to continue renewing policies in fire prone areas will just make them unwilling to insure those same areas in the future.
I think at this point you might be thinking, “Am I supposed to feel concerned for multi-billion-dollar insurance companies?” and that’s a great question. Indeed, you should feel concerned but not for the insurance companies, because they can just their ball and go home by leaving the state. You should feel concerned if you own a home in California because the problem is getting worse.
Recently home insurance giant AIG left California entirely. Carriers including Allstate, Farmers, Nationwide and Liberty Mutual have pulled back significantly regarding what homes they are willing to offer coverage on, leaving many consumers stuck with buying the California Fair Plan or no coverage at all. Again, it’s not the insurance companies that are suffering from all this, it’s the consumer. The reality is in California in 2023 we have significantly fewer options for not only home insurance, but also auto insurance, umbrella insurance, condo insurance, etc. due to the same types of issues I have just laid out. I wish I could end this article with some words of wisdom making it easy for you to secure home insurance for home in Calabasas. I can tell you a couple of easy things, like avoid filing small home claims and get an alarm system and a water shutoff device (which are all great ideas by the way!). Unfortunately, you can do all these things and still be unable to secure home insurance. Hopefully having some awareness of the issues is a positive first step and if you get one of those smokeclaim.com postcards, just mark it “not interested” and return to sender.
For more information, talk to an agent at (818) 686-5498.
