Fire Insurance for California Homes to Come at Higher Cost

While California’s top insurers may once again cover homes in fire-prone areas, the policies may come at a steep cost to homeowners.

Gov. Gavin Newsom signed an executive order late last month to speed rate approvals for insurance carriers, who insisted rates should rise to meet their rising costs, MortgageGrader.com reported in the Long Beach Press-Telegram.

The process will open a spigot of new fire insurance choices — but also send rates soaring, insurance experts say. It follows a deal last month between California Insurance Commissioner Ricardo Lara and insurance companies, many of which had stopped writing policies.

Rates “will increase 20 to 30 percent starting next month,” said Matt Murvay, an insurance broker who owns Murvay Insurance Services, based in Aliso Viejo, who has sold insurance for 18 years.

Pending and approved rate increases range from 3 percent to 40 percent for a dozen insurance companies that include State Farm, Farmers, CSAA, Liberty Mutual, Mercury, Allstate, USAA, Auto Club, Travelers, American Family, Nationwide and Chubb, according to the California Insurance Commissioner’s Office.

The 12 insurance groups represent 84 percent of the homeowners market, Michael Soller, spokesman for Insurance Commissioner Ricardo Lara, told Mortgage.com’s Jeff Lazerson in an email.

Over the past two years, Farmers, CSAA, Mercury, USAA, Nationwide, and American Family have all received approvals for rate increases, he said.

Insurers such as State Farm, USAA and Allstate all have requests for rate increases pending with the state Department of Insurance and seek respective hikes of 28.1 percent, 30.6 percent and 39.6 percent.

“The problems facing the California insurance market are complex, which is why our strategy does not focus on one element such as rates but also incentivizes wildfire safety and forward-looking models,” Soller said.

The California FAIR Plan, a state-run program which offers policies for homebuyers or owners shut out of the standard fire insurance market, was also approved to boost its rates by 15.7 percent, he said.

Mike Cambra of Laguna Hills-based Anvil Real Estate got a text message in April from a sales agent for a Rancho Mission Viejo developer. Because of the increased fire insurance charges, the clients in escrow awaiting construction of a new condominium would have to swallow a $547-a-month HOA fee increase if they still wanted to seal the deal, the agent said.

The new HOA payment would be $915 a month instead of the original $368, according to the message from the unidentified agent. And that didn’t include a $286 community association fee.

To help counter the HOA fee hike, the unidentified builder offered a $40,000 mortgage rate buydown credit, which the buyers declined because of concerns over long-term insurance affordability.

“I’m going to move forward with canceling the reservation for now,” wrote Cambra in a text to the agent after his clients decided it was just too much money for the added fire insurance cost. “It’s been a pretty frustrating process.”

— Dana Bartholomew