Bad Insurance News for Homeowners and Those Who Want to Sell
By Carol Solfanelli, PHAN Board Member.
Insurance coverage for residential properties in San Francisco has been challenging over the past year following State Farm’s decision to cease writing new residential insurance. In addition to that, State Farm recently announced they would not renew 74,000 policies in California this year. While State Farm is one carrier, they were the largest insurer in the state causing a great challenge for other carriers in the marketplace.
Aside from carrier capacity concerns, the insurance markets have significantly changed their underwriting appetite. Presidio Heights is seeing a challenge with obtaining coverage for homes built more than 100 years ago. One of our neighbors was recently told he would not have his insurance renewed. The State Farm agent told him they are no longer writing insurance for multi-unit buildings.
As it relates to real estate transactions, if you decide to sell your home, one of the things you will need to confirm is that it is still insurable based on the current insurance market! Just because you have insurance on it today does not mean a prospective buyer will be able to get insurance. If a buyer is not paying cash but is taking out a loan to buy the home, the bank will not give them a loan unless they can get insurance. And even if a buyer is paying all cash they will want insurance to protect this important asset.
While there are several companies not currently writing policies for homes in California, there are carriers such as CIG, AAA, Homesite and Mercury that are writing property policies but typically stay under $2M for the replacement cost of the structure. Chubb and Pure will write policies for homes with a replacement cost over $3M. For those homes with a replacement cost between $1.5M and $3M, Farmers may be a good option.
Two less-optimal possibilities are the California FAIR Plan, and non-admitted carriers. The California FAIR Plan is an insurer of last resort that you access through a broker and is generally considered a temporary insurance until a more permanent one can be obtained. Since non-admitted carriers do not have California insurance licenses and do business through wholesale brokers, they aren’t required to follow the same state regulations as admitted carriers and importantly, if the insurance company fails, the state will not step in to make payments on claims.
If you own a home and want to keep it insured or are selling your home, as a strategy in this market it is best to meet the requirements for an insurable property. What are they?
- Make sure the home has no knob-and-tube wiring and has been upgraded electrically;
- Replace the roof if it is tar-and-gravel after 10 years; bitumen after 25 years; and tile, slate or concrete after 30 years;
- Ideally, the plumbing should be updated with copper piping but this is not a strict requirement;
- Make sure the heating is no older than 25-30 years old; and
- Make sure any outstanding insurance claims have been closed.
This will make it easier for you to keep your insurance. And by making sure a home that is coming on the market complies with the above, it will be easier for a prospective buyer to get insurance and it will be easier to sell.
Insurance companies are now looking at aerial photos of roofs and denying coverage. Or they are requesting that the owner replace the roof within a certain amount of time. I recently helped a seller remove the knob and tube from her home which made a big difference for her sale in buyer enthusiasm since buyers knew it would be easier for them to obtain insurance.
Finally, if you are denied coverage, or your insurance is not being renewed, there are more carriers coming into the state as a solution for California homeowners. While these carriers are not as known, brokers are working tirelessly to gain access to untapped carriers until the insurance market eases up.
Carol Solfanelli is a real estate agent with Compass. She notes that "Alie Lopez with ProCo, an insurance services company, provided some of the information for this article. She is very knowledgeable about the insurance market and can be reached at (415) 223-7514."
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