As recently as a few years ago, there was a reasonable insurance option for nearly every home. Now, even homes more than a mile away from brush can be difficult and incredibly costly to insure. Homes with a recent history of insurance claims, or those with an old roof or plumbing system, face even greater challenges in securing home insurance. More homeowners are learning about the California Fair Plan (CFP), also known as the “carrier of last resort,” and wondering if it might be a solution for them.
The CFP was designed as a last-resort option for homeowners who had exhausted all other possibilities. Typically, this included homes in places like Big Bear or Lake Arrowhead, built from logs, with a wood shake roof, and possibly a recent claim or two. However, the CFP is now being asked to insure brand-new homes with no claims history across various communities in California. Unfortunately, for most homeowners, the CFP may not be a suitable option.
Here are some significant limitations of the CFP policy that homeowners should be aware of:
Coverage Limits: The maximum coverage limit available through the CFP is $3,000,000. While this may seem substantial, keep in mind that rebuilding a high-value home in areas like Los Angeles County or the Bay Area can cost $600 to $1,000 per square foot. This means homes of 3,000 square feet or more may not have sufficient coverage for a total loss.
Coverage Scope: The $3,000,000 limit covers not only the dwelling (the primary home structure) but also other structures like a detached garage, guest house, or gazebo, as well as personal property and loss of use. On a typical homeowners insurance policy, coverage for other structures, personal property, and loss of use is often equivalent to or more than the dwelling coverage alone.
Covered Perils: A CFP policy primarily covers fire and smoke. While there is an optional coverage for vandalism, it does not cover other common causes of damage, such as water damage, which is a major source of home insurance claims. Additionally, CFP policies do not cover liability, burglary, wind damage, and other perils typically included in a full homeowners insurance policy.
If you decide to go with the California Fair Plan, you can address these gaps by securing a “Difference in Conditions” (DIC) policy to cover the exclusions of the CFP. You might also consider an “excess” policy to increase your total coverage. However, this approach creates multiple policies to manage and can be quite costly.
Assuming all “admitted carriers” have declined to offer coverage, a better alternative might be a single home insurance policy with a non-admitted carrier, if available. Admitted carriers, such as Travelers, Mercury, or Chubb, are backed by the state of California if they become insolvent and are more closely regulated than non-admitted carriers.
Be prepared for significant sticker shock with non-admitted options. It’s common to see a homeowner’s premium increase from $5,000 annually with a carrier like State Farm to $30,000 or $40,000 a year with a non-admitted carrier. After adjusting to the potential cost, discuss cost-reduction strategies with your agent, such as lowering coverage for personal property or increasing your primary deductible. Additionally, since the state does not back non-admitted carriers, it’s crucial to check the carrier’s “AM Best Rating” and generally avoid those with ratings below “A.” Your agent should provide this rating with the quote.
Our CEO, Timothy Gaspar, believes the current insurance market challenges will improve as we move into 2025, so hopefully, the difficult insurance situation you face now will not last forever. Deciding whether to choose a CFP policy or a non-admitted option depends on your risk tolerance, and only you can determine what is best for you. We just want to ensure you understand the differences between the available options.
For additional insurance guidance, contact us today at 818.302.3060 or info@gasparinsurance.com.
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