California Homeowners Insurance Crisis: A Realtor's Guide to Keeping Deals Together
Negotiation Strategies to Save Deals
1. Seller Concessions
If insurance is expensive but available:
Request seller credits specifically for insurance costs
Consider asking for prepaid insurance premiums (1-3 years)
Negotiate property improvements to reduce insurance costs
2. Home Hardening Negotiations
If a property is in a high-risk area:
Request seller-funded home hardening improvements before closing
Include home hardening estimates in offer negotiations
Consider requesting escrow holdbacks for post-closing mitigation work
3. Creative Financing Solutions
Work with lenders who:
Understand California's insurance challenges
Can accommodate FAIR Plan plus wrap policies
Offer flexibility on insurance requirements
May waive impound accounts for insurance in special circumstances
Supporting Home Hardening and Mitigation
California's "Safer from Wildfires" framework provides a comprehensive approach to wildfire mitigation that can improve insurance availability and affordability:
Home Hardening Elements That Qualify for Discounts:
1. Class-A fire-rated roof
2. 5-foot ember-resistant zone around the home
3. Ember and fire-resistant vents
4. Double-paned windows
4. Enclosed eaves
For more information: https://www.insurance.ca.gov/01-consumers/200-wrr/Safer-from-Wildfires.cfm
The FAIR Plan: When Standard Insurance Isn't Available.
The California FAIR Plan is the state's insurer of last resort, providing basic fire insurance coverage when standard carriers won't.
Key FAIR Plan Facts:
Limited Coverage: Only covers fire, lightning, internal explosion, and smoke damage
Supplemental Coverage Needed: Requires a "Difference in Conditions" (DIC) policy to provide comprehensive coverage
Higher Costs: Typically more expensive than standard insurance
Policy Limits: Maximum coverage of $3 million (may be insufficient for high-value properties)
FAIR Plan Process for Realtors:
Verify Need: Document rejection from at least three standard carriers
Find a Broker: The FAIR Plan only sells through licensed brokers
Submit Application: Applications available at https://www.cfpnet.com
Arrange for DIC Policy: Supplement the FAIR Plan with additional coverage
Confirm Lender Acceptance: Ensure the lender will accept a FAIR Plan + DIC policy combination
Are there resources for Clients?
Consumer Protection Resources:
California Department of Insurance: 1-800-927-4357
Insurance Consumer Hotline: For complaints or assistance with claims
Disaster Assistance: https://www.insurance.ca.gov/01-consumers/200-wrr/
Community Wildfire Resources:
Firewise USA: https://www.nfpa.org/firewise
California Fire Safe Council: https://cafiresafecouncil.org
CAL FIRE Wildfire Preparedness: https://www.fire.ca.gov
Have there been any recent regulatory actions to give consumers some relief?
Recent actions by California Insurance Commissioner Ricardo Lara may provide some relief:
1. Mandatory Discounts for Mitigation: New regulations require insurance companies to provide discounts for properties with wildfire safety measures.
2. One-Year Moratorium on Cancellations: Following declared disasters, insurance companies cannot cancel or non-renew policies in affected areas for one year.
3. Net Cost of Reinsurance in Ratemaking Regulation: New rules require insurance companies to increase coverage in high-risk areas while limiting costs passed to consumers.
Closing Thoughts
While California's insurance crisis presents significant challenges, well-prepared realtors can help clients navigate these obstacles successfully. By understanding the tools, resources, and strategies outlined in this guide, you can better serve your clients and keep transactions moving forward despite insurance challenges. Additional Resources For more information or to stay updated on insurance developments: Join the California Association of REALTORS® Insurance Hotline: https://www.car.org Follow the Department of Insurance for regulatory updates: https://www.insurance.ca.gov/0400-news/ Connect with local insurance specialists focusing on high-risk properties This guide is intended for informational purposes only and does not constitute legal or insurance advice. Insurance regulations and market conditions continue to evolve rapidly. Always consult with qualified insurance professionals for the most current information.