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HOA Insurance, Carriers, and Trends: What to Expect in 2024

HOA Insurance, Carriers, and Trends: What to Expect in 2024

With the spate of wildfires and other natural disasters in recent years, insurance companies in California have taken a beating. Many insurers are not offering new policies at all, and the ones that are have raised rates to stratospheric levels, making it unaffordable and leaving many homeowners and HOAs anxious about their coverage.

California’s Real estate values are among the country’s highest; despite this, homeowners typically enjoy below-average rates. However, many standalone policies now have strict requirements for coverage, including updated plumbing, electrical, HVAC, and removal of potential fire hazards (brush, trees) near the dwelling.

In the wake of these changes, policyholders must take a strategic approach to ensure they maintain the best possible coverage and affordable rates.

Major Insurers Leaving California in Droves

In 2022, Allstate and State Farm were two of California’s first major insurers to stop offering new policies to homeowners. Since then, many smaller companies have followed suit, citing inflation and rising costs of reinsurance, rebuilding, and recovery from wildfires and extreme weather events in the state.

Some small insurers went under following the wildfires in 2018, leaving homeowners scrambling to find coverage.

An unfortunate offshoot of this is that it also affects the housing market, with almost 30% of builders in California stating that insurance concerns are influencing home-building and buying decisions. A recent survey also found that 27% of homeowners considered leaving the state entirely because of rising insurance costs.

Policies under the FAIR Plan have surged in recent years as some property owners have no other option. The FAIR Plan was created as a temporary stopgap option to provide homeowners with fire coverage when there were no other options. In other words—it was never meant to be a permanent solution. Rates are typically higher than they would be with market insurers, and since it only covers fire, homeowners would need to obtain additional policies for liability, water damage, etc.

The recent Sustainable Insurance Strategy aims to increase capacity and access to policies while allowing insurers to write catastrophe coverage and reinsurance costs into their rates. The Strategy also mandates that insurers write 85% of their market share in distressed or disaster-prone areas. Hypothetically, this requirement would increase insurance availability. However, it does not address the limitations placed on insurers by Proposition 103, a 35-year-old rule created to protect consumers by keeping rate increases in check.

Rising Costs, Shrinking Coverage

Some California homeowners have necessarily turned to insurers outside the state to obtain coverage, which often comes with a significantly higher price tag as those companies are not bound by Prop 103 or any other ordinance limiting what they can charge. In these cases, the insurers base their rates on risk scoring, which can be exceedingly high for properties in high-risk areas.

To obtain the coverage they need to maintain, HOAs often have several carriers to make up the whole—and often have to secure coverage in the secondary market—but this approach isn’t financially sustainable over the long term. The cost will eventually need to be passed along to residents, resulting in higher fees or more frequent special assessments.

Higher deductibles could be a solution to keep fees down, but associations need to consider how that would impact the community in the event of a disaster.

Rising Insurance Premiums a Mounting Concern for HOAs and Homeowners

Homeowners and HOAs in California have long faced higher premiums for specialized insurance, such as earthquake or wildfire coverage. However, in the wake of the insurance crisis, many HOAs have been non-renewed and are challenged to find new coverage in the current market.

Since the FAIR plan is also available to HOAs, many have had to turn to this option to ensure adequate coverage in case of disaster, multiplying the cost of providing even the most basic protection. Members must also carry their own insurance policies, but many also face similar issues and risk losing access to coverage if they are non-renewed.

Despite the intense focus on resolving or at least mitigating the current insurance crisis, HOAs and homeowners must take a proactive stance. One thing we’ve learned in recent years is that we can’t take anything for granted, and our right to insurance is no exception.

Here are some of the ways to prepare for what lies ahead.

  • Start shopping around now. With fewer insurers to choose from and most of them experiencing increased demand, it takes more time than it should to research and identify options. You may not need to change just yet, but knowing where you might go will reduce anxiety (and potentially cost) should you have to find a new insurer.
  • Start planning ahead of your renewal date. Don’t assume your policy and coverage will remain the same. Be mindful of your renewal date and start shopping around, or speak to your broker well before the policy renews. As these processes are typically taking longer, give yourself three months minimum.
  • Review your current policy. Don’t take for granted what your policy does and does not cover. The risk environment has changed, recovery and restoration costs have risen, and the association’s needs may have also changed. Understanding your coverage and its limitations ensures you and your residents have what they need.
  • Address risks. Remove brush, add fire-resistant landscaping features, and prioritize property maintenance to reduce fire risk. Keep your trees healthy, and remove any that might pose a danger. Some insurers incentivize these practices, while others may require it if you are located in a high-risk fire zone.
  • Be strategic about your deductibles. Higher deductibles can reduce premiums and may help to keep fees reasonable. Consider the cost of a claim for various disasters against the cost/benefit of keeping fees down with a higher deductible.
  • Bundle your coverage. Many insurers offer significant discounts if you bundle different types of insurance, and this could be an option if all coverage is handled under the same company.

Final Thoughts on the Insurance Crisis

Though lawmakers in California seem to be taking the insurance crisis seriously, we’re nowhere near a viable solution. Stringent HOA management, cost reduction, and risk mitigation are essential to weather the storms ahead. Connect with us today to learn how we can help.

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