AUTHOR / MICHAEL BERG (CIRMS, CMCA, MBA) OF LABARRE OKSNEE INSURANCE
This article first appeared in CAI CA North Chapter’s, The Voice Magazine’s Spring 2025 Issue.
As many have heard by now, a number of insurance carriers have restricted their underwriting in California or left the state entirely. Most recently, State Farm Insurance announced that 72,000 residential, condominium association, and apartment policies would be non-renewed. This became a common topic of discussion in January due to the Palisades and Eaton wildfires in Los Angeles County.
These moves were meant to protect the carrier’s solvency. Carriers have difficulty pricing policies in California due to regulations within the Department of Insurance. In addition, with fewer carriers oper- ating in the state, the reinsurance market is impacted, which forces costs up, and carriers cannot afford a purchase that is intended to diversify their exposure. The result is a limited number of carriers actually writing new policies.
When a preferred carrier like Farmers or State Farm is unavailable, many HOAs end up in the excess and surplus market. Here, carriers apply a minimum earned period, where a percentage of premium, plus taxes and fees, are immediately earned at inception. This is a sort of quitting cost the carrier uses because they know their cost is high, and many insureds will continue to search for a more reasonable premi- um throughout the policy term. However, considering the market isn’t changing anytime soon, it is rare for a less expensive option to suddenly become available. Plus, consistent mid-term shopping of a risk creates concern for a carrier, and many carriers will not consider a risk for a mid-term change.
Most boards of directors’ request that their insurance broker provide offers from multiple carriers. In the past, a community manager could approach a Farmers Insurance agent, a State Farm Insurance agent, and an insurance broker specializing in common interest developments. In the market today, that simply isn’t feasible. Options are just that few and far between.
One of the major factors carriers today are concerned with is exposure to wildfire loss. Most carriers use a model called RiskMeter, which rates exposure on a scale of 1 to 100. A score between 1 and 30 is considered a low risk, 31–50 moderate, 51–80 high, and 81+ extreme. A higher rating limits the number of carriers willing to accept the exposure. Those who are interested require a high premium.
Fire safety measures are a hot topic. The Department of Insurance (DOI) issued recommendations such as “Safer from Wildfire” to entice preferred insurance carriers back into the market. These projects are intended to better protect property from fire damage, which would give a carrier comfort that losses will be limited and/or avoided. The DOI has also announced that a carrier must consider these fire-hardening measures when rating a property. However, because of California’s insurance rating process, carriers cannot charge premiums they believe address their exposure and remain unwilling to participate.
In addition, if a carrier is willing to write a percentage of risk in wildfire-exposed areas, the DOI has offered to allow carriers to price their policies using predictive modeling rather than traditional historical modeling. Carriers believe this will provide a better estimate of future exposure. Carriers would also be allowed to price coverage without the limitations that current California legislation requires. This would mean a preferred carrier could provide a policy with the premium the carrier believes is commensurate with the exposure. Current legislation essentially takes the setting of the premium out of the carrier’s hands and puts the control in the hands of the DOI. That’s the equivalent of the Department of Motor Vehicles telling Mercedes Benz how to price a car. Ultimately, though, the carriers simply don’t want the risk of wildfire loss right now.
That doesn’t mean an HOA should ignore the recommendations. In fact, it would be in the community’s best interest to implement these measures now so that when preferred carriers return to the market, the community can take advantage of previously unavailable rating credits and discounts. Communities that wait will remain in the surplus market while the measures are implemented, extending the period of time the HOA pays high insurance premiums.
Fire-hardening and insurance are not the only ways an association can address risk. Insurance is part of a risk management program that also includes maintaining, avoiding, and accepting risk. An insurance carrier will regularly perform a loss control inspection to identify exposures and provide recommendations on how to address the expo- sure before a loss occurs. Common recommendations include:
- Clearing debris from street gutters, sidewalks, walkways, and rooftops
- Addressing lifted or shifted concrete that creates a trip hazard
- Fire extinguisher and fire sprinkler maintenance schedules
- Replacement of outdated or dangerous electrical components (inside or outside of units)
- Removal of charcoal and propane grills from balconies
- Tree trimming and maintenance schedules
