Let’s talk about Homeowners Insurance
Welcome, I am Ashlynne. I am one of the owners of VP Custom Insurance Solutions. My goal in writing this blog is to guide you in learning what insurance is. Answering those questions that no one seems to take the time to answer. To pull the curtain aside and let you peek into the workings of an agent. Now let’s get back to what you came here for.
You ask the person next to you or the person you pass on your way to work and chances are that they have homeowners insurance if they own their home. They may also go on to tell you in an irritated tone, that their premium has increased significantly or that they had to move to the California Fair Plan. California is struggling right now when it comes to insurance and being able to accommodate everyone for insurance. The shock is starting to wear off slightly as we go into our second and third year of this processes. Let’s take a look at what homeowners insurance is and all that comes with it. I will be speaking from the point of those living in California, but there will be useful information for all who read this.
A homeowners policy is like it sounds, it is an insurance policy that is protecting your home. However, it can also cover damages to your personal property, outbuildings, and even fences. It also provides liability coverage for homeowners living on the property and workers comp coverage for those your hire to do work within your home, like baby sitting. Your policy may even cover some costs of living expenses. Each policy is of course different based on the home itself, the needs of the homeowner, and what coverages the carrier is providing. Each coverage on the policy is based on your unique home. Which is why you cannot compare your coverage to you neighbors. We all live a little differently and each house is slightly different. In the State of California, we are going through a very difficult time with insurance. We have carriers no longer writing in California, prices sky rocketing to triple what they were, and we are all having to learn what the California Fair Plan is. Why is this happening? What is a fire score and why is it effecting me? Will I ever be able to get insurance again that is less than what I am paying now? These are all great questions. Let’s dive in and ask.
Let’s talk about the insurance market for a minute. Many of you know Nationwide, Liberty, and Progressive as insurance carriers. Their marketing campaigns have made them well known in every household. Did you know there are thousands of carriers offering insurance? Not every carrier covers every type of risk, some specialize in auto, others recreational vehicles, some only do high value homes. There is a carrier for everything. With that being said, many of those carriers are refusing to write in California or have tightened up on their requirements making it difficult to place a policy with them. Why is this happening? Well it started with mass losses due to catastrophic events. The first wave of this was due to wildfires taking out whole towns. Carriers were paying out millions to help people replace their homes. Carriers are rated based on their financial health and ability to payout on claims vs the amount of risks they have. So we had carriers increasing their rates to help replenish and balance themselves back out. That is a long processes and it does not happen overnight. So carriers started looking at the long game, are they able to sustain their current books and provide coverage to high risk areas. The answer was no, they are not able to unless they can get the Insurance Commissioner to approve their new rate increases and structures. Currently, carriers are not being allowed to increase their rates and so the next logical step is to either pull out of the high risk areas, or out of the state in its entirety. I am sure you can deduce that many have chosen to not provide coverage in the State of California right now. Even State Farm has had to publicly announce that they are no longer writing business in California right now.
Ok, I am down ranting about the current state of Insurance. Let’s get back to homeowners coverage. When you are looking to get homeowners insurance, it is important to have an understanding of the values of your property. Your insurance agent can provide some guidance in this, but I always recommend having a figure in your own head and making sure you are comfortable with what is being offered in your policy. The biggest value to have down is the value of your home to replace it to its current condition. Insurance carriers do not insured for the value to replace and improve your home. That is a separate coverage we will go over in a minute. What will it take, monetarily, to replace your home as it currently is? This number is going to change from year to year as the inflation of materials and labor changes constantly. When an agent thinks about the value of their home they are thinking in terms of cost per square foot or insured to value figures. Depending on the location of your home is going to determine the cost to rebuild your home and subsequently the value of the home you put on your policy. Let me use our area for example, we are a rural area with a handful of lumber yards and competing contractors. Due to our materials having to be shipped in with few competitors, the cost if materials is higher than a city or urban area that has many choices. Our area ranges from $300 to $500 a square foot to build from the ground up. If it is a manufactured home we are looking at starting prices around $150 to $250 a square foot. By taking the cost per square foot and multiplying by the square footage of your home gives you the value to use on your policy. For example: 2,000 sqft X $300 = $600,000 for a standard home. 2,000 sqft X $150 = $300,000 for a manufactured home. Great now the rest of your property is based on a percentage of that figure for your contents and outbuildings. If you have some very valuable belongings, bring this to the attention of your insurance agent. These items will be handled a little differently and may need to have an appraisal completed.
Now let’s get that policy written for you. The next questions for you and your agent are is this is a high wildfire area and what carrier will you fit with? Let’s talk briefly about a wildfire score. This is something that has become way more popular in recent years. Carriers are replying on this information more prominently then they have in the past. You may not have heard of this before now but you will certainly hear it a lot going forward. These scores are on a scale of 1-100. They are produced by companies that are surveying the geographical area and the nature of plant growth, rain, etc. and giving it a score. One of the more well know companies doing this is called Core Logic. No area has a score of 0 because there is always some type of risk, however most carriers are looking to provide coverage for areas that are typed at a number of 65 or below. Most of California is between 70 to 100. We are starting to see wildfire surcharges for areas that are in the higher number. Most carriers will not write a policy for anything above a 90. That does not mean that if you are in one of these areas that you are not able to get some type of coverage. It just means you are either paying a much higher price or you will be with the California Fair Plan. The ways to keep your property the most desirable to carriers is by having updates to your roofing, heating, electrical and plumbing within the last 10 years. Make sure to let the agent know if your house has a sprinkler system in it. Maintaining your property to keep dead vegetation clear, trees trimmed away from your roof and siding, are all good ways to show you are doing everything you can to keep your home safe from loss.
I have mentioned the California Fair Plan several times now, who and what are they? Good question, most agents had not even worked with them until the last couple of years. The fair plan was created to provide limited temporary coverage to people who were unable to procure property insurance for one reason or the other. The intent behind the fair plan was to provide basic coverages for six months to a year and then help funnel your policy out to a carrier who would insured you for all the perils you may face, except those specifically excluded. With the state of the market as it is, the fair plan finds themselves acting more as a carrier then a pass through. More people every day are needing the fair plan in order to have coverage and satisfy their lenders. The thing to remember about the fair plan is that they only provide coverage for a few perils. The main ones being fire and explosion. They do not provide coverage for all the other perils you are used to getting from your policy like theft, weight of ice and snow, flood, and earthquake to name a few. To get some of those coverages back you would need to purchase a wrap policy to pair with your fair plan policy.
This all sounds very doom and gloom but we are happy to know that we have at least some carriers sticking it out for us.
What does that mean for insurance going forward? Well it really is hard to say right now. We are still trying to find the plateau so to speak where the outflow of carriers stops and the market starts to heal. While that is going on we can expect to keep dealing with this current market. Many want to know if we think the market will go back to what it was prior, will prices go back down. Our answer is that we expect it to go back down a little, however we do not expect insurance to ever be what it was. This has been a huge learning curve for our carriers and they are working very hard to not be in this type of position ever again. We will start to see carrier reenter markets they exited, to provide coverage to those they have had to let go, and for the fair plan to be a back up to the back ups once again. We cannot say though if that will be 3 years, 5 years, or 10 plus years. Time will tell us more.
In conclusion, if you have one of those preferred carriers, safeguard your policy, do not let a payment go missed, comply with all your inspections and requests for information. Hang on tight. If you are part of the group that is needing to find new coverage, I strongly urge you to find an independent agent that can help you navigate this market. An agent is there for you and to help you and to handle all the difficult tasks of finding a policy. Please call our office and speak with our agents, we work with many great carriers and we have experience for the areas that are harder to find coverage for.
