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California homeowners are being dropped by their insurance companies. Here’s why and what you can do about it.

By RealtyBiz News | June 14, 2023

In most cases, the policyholder cancels an insurance policy. But what if your insurance company decides to drop you as a customer? This is the reality many shocked California homeowners are waking up to. 

Between 2019 and 2020, over 400,000 California homeowners were informed that their home insurance policies were not being renewed. What’s behind this trend, and what can California homeowners do about it? 

California is known for its destructive wildfires, which in recent years, has increased in frequency and intensity. That’s making California insurance companies nervous. More fires mean more insurance claims for damaged homes. 

According to The Zebra, 15% of California households are in a wildfire danger zone. State data show that, in 2018, nearly two million acres of state land sustained damage from wildfires. The areas with the biggest drop in home insurance coverage include Northern California, Southern Sierra northeast of Bakersfield, and areas north of Los Angeles. 

Some insurers are now choosing to drop customers in high-risk areas. For many homeowners who were dumped, finding a new insurer is nearly impossible. And if they do find one, they’re likely to pay a rate well above the state’s average of $1,031 per year.

Do California homeowners insurance companies cover fires? 

Most California insurers cover wildfire damage. Some policies also cover additional living expenses should you need to find alternative accommodation because your home is unlivable. Fire damage caused by arson or that occurs in a vacant home is usually not covered by a homeowners insurance policy. 

What about earthquakes and floods? 

In addition to wildfires, California is also prone to earthquakes. That doesn’t mean your home insurance policy automatically covers earthquakes. Many do not, but you can add earthquake coverage to your policy at an additional cost. 

Most homeowners insurance policies also don’t cover flooding. Again, you’d have to add flood coverage to your policy. Alternatively, you can buy separate flood insurance from a flood insurance company or through the National Flood Insurance Program (NFIP).

If you live in an area that experiences natural disasters, always check if it is covered by your homeowner’s insurance policy. 

What can you do if your insurer cancels your home insurance policy?

In California, the law states that your insurer must give you at least 75 days' notice of the intention to cancel before your policy expires to give you time to find a new insurer. With more insurance companies denying policies to homeowners who live in high-risk areas, finding a policy elsewhere is becoming increasingly difficult. 

So what recourse do you have if your insurer cancels your home insurance policy? 

Unlike car insurance, homeowners insurance is not compulsory. If you can’t find an insurer willing to insure your home, you can go without it. However, that’s not advisable, especially if you live in a disaster-prone area. 

Here are three things you can do if your insurer refuses to renew your homeowner's insurance policy:  

1) Increase your deductible. Insurance companies are always trying to minimize risk. You could try negotiating with your insurer. For example, they may be willing to keep you as a customer if you raise your deductible, thereby reducing their risk.  

2) Shop around. If a higher deductible doesn’t sway your insurer, then shop around. There are insurance companies willing to accept customers who live in wildfire zones, albeit at a potentially higher rate. 

3) Get insured under California’s state-run FAIR Plan. The California FAIR Plan scheme is usually a last resort for people who can’t find insurance with a private insurance company. The number of homeowners who joined FAIR Plan increased dramatically in 2020 in relation to the number of people left stranded without home insurance. FAIR Plan isn’t ideal as it can be expensive and only provides basic fire protection (liability and theft cover are not included). 

What is the state doing to address this situation? 

To protect California homeowners and drive down insurance costs, the California Insurance Commissioner introduced new insurance pricing regulation that requires insurers to offer a discounted rate to homeowners who have taken steps to safeguard their homes from wildfire. 

Insurance companies are to assign a wildfire risk score, taking into account extra precautions homeowners have taken to fireproof their property. Should an owner feel they have been unfairly rated, they have the right to appeal the score.

Furthermore, in 2018, the state passed a law that stops insurance companies from canceling or not renewing customers' policies in a knee-jerk reaction to the governor declaring a state of emergency following a wildfire disaster. This law imposes a mandatory one-year moratorium on insurance companies that prevents them from canceling or not renewing residential insurance policies in areas within or adjacent to a fire perimeter in that year.

If you live in an area at risk for wildfires, finding cheap California home insurance can be a challenge. Fortunately, the law is on your side. Improving your home’s wildfire safety rating can help you score a lower rate. However, should your insurer cancel your policy, don’t lose heart. There are insurance companies in California that are more flexible and willing to welcome you as a customer. 

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