LOS
ANGELES, July 29, 2024 /PRNewswire/ -- Important
regulatory updates, coming by end of year, plan to provide
homeowners insurance options to consumers, according to a panel
discussion this week hosted by the Center for California Real
Estate. Panelists offered important tips on specific actions to
take now to help better protect their homes and increase their
chances of keeping their policies or to improve eligibility for
coverage as the changes take effect.
Moderated by CALIFORNIA
ASSOCIATION OF REALTORS® (C.A.R.) President Melanie Barker, the forum The Center for
California Real Estate Presents: California's Insurance Landscape: From Risk to
Resilience, featured a progress update from Insurance
Commissioner Ricardo Lara, and a
panel discussion including Amy Bach,
executive director of United Policyholders; Rex Frazier, president of Personal Insurance
Federation of California; and
Nancy E. Wallace, professor and
co-chair of the UC Berkeley Fisher Center for Real Estate and Urban
Economics.
Key takeaways
1. Regulatory changes by end of year plan to add insurance
options, resiliency to the market.
Commissioner Lara shared proposed changes to Prop 103, on track for
implementation by December 2024, that
collectively represent California's largest insurance reform in 30
years.
They hold the potential to resolve key issues that have led to
sky-high rate increases, non-renewal notices and some large
carriers pulling out of the state altogether. The deal will:
- Loosen rate-increase caps that have been in place for decades,
allowing insurance companies more freedom to set their own
market-driven rates.
- Grant the ability to apply modern risk-modeling systems used
across the nation, rather than relying solely on historical data
that does not recognize modern wildfire mitigation.
In exchange, insurance companies must agree to write 85 percent
of new business in wildfire prone areas and offer discounts for
hardened homes that meet certain criteria in reducing wildfire
risk. The new regulations also will require insurance companies to
explain why a home is not being renewed.
"We're hearing about some companies opening up again," said
Bach. "They're obviously waiting for the regulations to take
effect, but some of them are [getting ready to] turn the tap on and
get those premiums flowing again. So, we are seeing a little bit of
a blue sky."
The return of insurers to the marketplace reduces strain on
California's state-run FAIR Plan
home insurance provider, which holds the largest share of high-risk
policies and has grown exponentially — and unsustainably — far
beyond its intent. Because the FAIR Plan is collectively backed by
the smaller insurance companies, the impact of a once-in-a-decade
event could be catastrophic to the entire industry.
"The biggest surprise and disappointment was when State Farm
stopped writing new business," said Frazier. "That was not
exclusively a fire-related issue. It was the sufficiency of their
capital. This ceased being a regional problem and became a
statewide problem. The real growth has to come from the companies
that are in the 4 percent-6 percent of the market — Liberty
Mutual, USAA, the Auto clubs (both northern and southern), Mercury,
and Travelers. And all of the indications are extremely
positive."
2. Consumers need to take action now.
Lara advised homebuyers and sellers to start shopping early, as
insurance needs to be in place for a home sale, just like
financing. Assessing the home's wildfire risk and potential
upgrades to more firewise features will be important considerations
on both the selling side and the buying side.
Lara also advised consumers to get their mitigations in place
now so that when the new regulations go into effect, they can be at
the front of the line to transition out of the FAIR Plan to one of
the returning carrier policies. "Start hardening your home now.
Because once the changes come in, the homes that are fully hardened
are going to be the first to get off a FAIR Plan."
Bach, of United Policyholders, advised homeowners it's time to
pay more attention to their home insurance to ensure they keep
their policies. "The message to consumers is you've got to find a
professional agent in this market; trying to shop on your own is
really hard. And then the home hardening is pretty critical." She
said insurers know more about a home's condition than ever, using
new technologies like aerials and AI. Homeowners can access
resources at uphelp.org/preparedness.
3. Interdisciplinary collaboration and new technology are
advancing solutions.
Nancy Wallace, a survivor of the
1991 Oakland Hills fire, is spearheading collaborations to address
the insurance crisis, working with her team at UC Berkeley's Fisher
Center, along with cross-sector academics and industry experts to
build a comprehensive data store with climate, housing, topography
and mortgage market data. The effort is helping develop better
predictive modeling systems and generating ways to leverage data
into new proactive tools for the marketplace. "We're reopening this
Pandora's box of solving the problem of physical sciences,
environmental sciences, economists and financial economists working
together to develop both the modeling technology that's suitable
for this state, and also the capital market technology
— especially the mortgage market — to think about solutions,"
said Wallace.
One such solution being developed by one of Wallace's master's
program students is a new app for homeowners, FireBreak, designed
to compile their home mitigation efforts into a report that can be
shared with insurance brokers and incorporated into the application
process.
4. Community-wide hazard mitigation will be critical going
forward, but funding remains a challenge.
Panelists advocated for a collective long-term solution in which
not just individual homes but entire communities embrace wildfire
mitigation practices. "The much bigger issue driving this is not
individual home hardening, it's community-level hazard," said
Frazier. "Community-level mitigation is what is going to
dramatically change our situation."
However, funding for these mitigations — both individual
and community-wide — remains a challenge. Frazier favors property
tax assessments, which Barker and C.A.R. oppose. PACE loans, which
helped restore Nancy Wallace's
neighborhood, are widely used in commercial real estate, but are
not without complications for the residential sector, especially
for an individual homeowner, as improvement costs can be
prohibitive. But the hardening efforts cannot be piecemeal, says
Frazier. "The science says that when you make a suite of
improvements, not just one à la carte, that's where the risk
reduction comes. That ember is going to exploit every weakness.
Once the regulations are changed to say 'if you want significant
discounts, you have to do everything,' you'll see a difference in
result."
A recording of the panel discussion can be found on the CCRE
website.
The Center for California Real Estate will host its next expert
forum on August 22, Navigating
San Diego's Housing Opportunities:
Collaborative Approaches, Practical Solutions.
About the Center for California Real Estate
The Center for California Real Estate (CCRE), an institute of
the California Association of Realtors (C.A.R.), advances knowledge
and research by collaborating with varied partners, spurs
innovative thinking about key issues facing California and the real estate industry, and
extends C.A.R.'s influence via intellectual engagement with
different audiences, diverse stakeholders and new external
partners.
CCRE serves as a nexus for multi-disciplinary thinking aimed at
solving some of the state's most challenging issues. Bringing
together key experts from a variety of fields — from academics and
policymakers to industry leaders — CCRE produces new knowledge and
serves as a key resource about housing issues for all C.A.R.
members, external entities, the media and the public.
About the CALIFORNIA
ASSOCIATION OF REALTORS®
Leading the way…® in California
real estate for more than 118 years, the CALIFORNIA ASSOCIATION OF
REALTORS® (www.car.org) is one of the largest state
trade organizations in the United
States with 180,000 members dedicated to the advancement of
professionalism in real estate. C.A.R. is headquartered in
Los Angeles.
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SOURCE CALIFORNIA ASSOCIATION
OF REALTORS® (C.A.R.)