Homeowners insurance in the high fire zones - house in the woodsHomeowners insurance is once again in the news, and home owners (as well as those actively wanting to buy or sell a home) need to know how this may impact real estate transactions. This type of coverage is also called Fire Insurance, though it does cover losses beyond just those caused by fire.

  • Several major insurance carriers have either stopped writing new homeowners insurance policies in California or are severely limiting the number of policies that they’ll write.
  • For property owners in the Very High Fire Hazard Severity Zone, this limitation of conventional coverage is causing insurance premiums to skyrocket, especially if the insurer or last resort has to be used, the California Fair Plan. We’ve heard of insurance costs going up 10 times the previous rate or more in some cases!
  • There are some other options, listed below, that may provide some possible relief.
  • Insurance companies use their own maps, which are not published and in some cases have more expanded zones that they consider too risky for coverage.
  • Buying a home in an area with a higher fire risk? Find out about the insurability of the property BEFORE writing the offer.
  • My insurance agent recently told me that as a rule of thumb, “homes that are within 1000 feet of natural hillside brush or trees on any side of the home will have trouble getting insurance with many carriers.”

Major Homeowners Insurance Carriers Pull Back

Allstate, State Farm, and now Farmers have all pulled back from writing new policies in the Golden State, either completely or partially, due to the fires of recent years and the financial liability that they have caused those companies.

We’re not really in new territory here. Over the last 35 years, we’ve had several cycles of difficulty with obtaining homeowners insurance. In California. In years gone by it was challenging to get it after the Loma Prieta and Northridge earthquakes in 1989 and 1994, respectively. When a spate of mold cases came up in California and Texas in the late 1990s and early 2000s there was also a pullback by insurance companies.

Today it’s a fire risk issue, both in and out of the major CAL Fire risk zones for losses from fire.

If California homeowners cannot purchase this insurance through the more normal channels, they always have  the option of buying it from the California Fair Plan Property Insurance. This is the same avenue for obtaining earthquake insurance, which the major carriers also do not offer after catastrophic losses.

High Fire Risk Zones are the Hardest Hit

Most of the Golden State is not in areas with high risk of damage or destruction due to fire per the CAL Fire maps, and in those less risky areas it should be possible to get a policy without having to use the CA Fair Plan system.

Where we are hearing horror stories are in the areas deemed at highest risk for fire and smoke damage. When those areas are hilly, there can be the added risk of landslides, flooding, or mudslides in the first year or two after the fire, particularly.

Other coverage options

If your regular insurer cancels your premium, you are supposed to get 45 days’ notice. During that time you may be able to find other coverage through insurance companies that are not backed by the California Insurance Guarantee Association (CIGA).

The California Association of Realtors has a one page PDF with helpful tips on finding or keeping coverage in the wildfire zones. You can check it out HERE. It suggests that if it’s not possible to get CIGA covered insurance, it is better to try to locate coverage through alternate carriers without that coverage – but to vet them very, carefully.

It also states “If you’re out of options, contact California FAIR Plan at 1-800-339-4099. The FAIR Plan policy can be expensive, and it only covers certain losses by fire and smoke so you will need to buy Differences in Conditions (DIC) insurance to cover other perils such as theft and liability. ”

Bottom line: the Fair Plan should be a last resort as the coverage is more costly and not nearly as comprehensive. Finding the best homeowners insurance options may take some research with these non CIGA providers That same PDF offers these resources for consumers to investigate: Residential Insurance Contact List

We just heard of someone in Bonnie Doon who had been paying $1,000 per year and now had to pay $2,000 per month for approximately the same coverage, or $24,000 per year. Another friend of mine in Los Altos Hills saw her premiums go up more than tenfold. The insurance crisis is real.

Homeowners insurance and buying in the high fire risk zones OR zones that most carriers consider to be risky

Before writing an offer on a home in or near a known higher risk area for fire, consumers would be wise to contact their insurance agents and find out upfront (1) if their carrier will write a policy for that home, (2) at what cost, and (3) if the coverage is typical or more restricted.

We’ve been told that our purchase contract form, provided by the California Association of Realtors (CAR contract), will be updating the purchase agreement with some sort of clause or contingency regarding this insurance challenge.

The homeowners insurance rates will vary based on many factors, including the location and condition of the property, which carrier is quoting the premium, a person’s history of making claims, the applicant’s credit rating, and other factors.


Related Reading to homeowners insurance

Homeowner’s Insurance, Title Insurance and Home Warranties

What is title insurance and who pays for it?

Seller rentback after close of escrow: what do you need to know? (homeowners insurance issues)

Do all home buyers purchase PMI (Private Mortgage Insurance)?