Realtor Scott Himelstein from the Scott Himelstein Group in Los Angeles, dives into a topic that’s been causing quite a stir for homebuyers in California, especially those eyeing properties in fire-prone areas like Porter Ranch, Chatsworth, Granada Hills, Santa Clarita, Agoura, and Calabasas just to name a few. Yep, you guessed it – we’re talking about the not-so-easy-to-get home owner’s/fire insurance and how it’s affecting homebuyers. So, let’s get right into it.

First off, if you’re in the market for a home in one of these fire-risk zones, you’ve probably experienced a bit of sticker shock when it comes to homeowner’s insurance. I mean, it’s not unusual these days for an annual policy to set you back a whopping 10 to 15 grand. Ouch! But why, you ask? Well, let me break it down for you.

Insurance companies, as you might have heard, are increasingly limiting their coverage or, in some cases, bidding California adieu altogether. And this isn’t just some random occurrence; it’s driven by a handful of significant factors.

For starters, we’ve had some massive wildfires in California over the past few years. Back in 2017 and 2018, insurers had to fork out a jaw-dropping $15.4 billion and $13.6 billion, respectively, to cover wildfire-related losses. These numbers were way higher than previous years, which understandably freaked out insurance carriers.

To cope with these colossal losses, insurance companies started asking for rate hikes to offset their losses, and that translated to higher premiums for homeowners. Thanks to Proposition 103, a law from 1988, these companies have to justify these rate increases based on their average annual wildfire losses over the past two decades. With the surge in wildfire losses, insurance companies were essentially forced to take on more risk than they could handle with their premiums, and that led to many of them pulling out of high-risk areas or just leaving California altogether.

But that’s not all. Inflation and supply chain woes have also played their part. Residential construction costs have skyrocketed by around 34% since the pandemic began, all thanks to supply chain hiccups and labor shortages. For insurance companies, these higher rebuild costs mean they’re shelling out more for claims, which in turn raises homeowner’s premiums. So, a lot of folks are finding themselves underinsured because the cost of rebuilding their homes after a disaster has ballooned.

Now, I know this all sounds a bit doom and gloom, but there are things you can do to make sure your home and finances are adequately protected. First, reach out to your insurance agent if your policy gets canceled or isn’t renewed. They can help you find ways to reduce your home’s wildfire risk, which can make it more attractive to insurers and even qualify you for premium discounts. Another option is consulting a local insurance agent who knows the ins and outs of the insurance landscape in your area. The Department of Insurance even has a tool to help you find local insurance agents.

Lastly, there’s the California FAIR Plan. This serves as a last-resort option for homeowners who’ve been denied coverage in the regular insurance market. But keep in mind, it might cost you more and offer more limited coverage compared to standard policies.

So there you have it, a glimpse into why fire insurance is such a headache in California’s fire-prone regions. It’s important to be aware of these challenges, especially if you’re a homebuyer, as those high insurance premiums can seriously impact your debt ratios. If you’ve got any questions about the home insurance market or real estate, feel free to give me a shout at 818-396-3311.