https://thesheetnews.com/2020/01/17/buyer-beware/

On January 5, 2019, the Wall Street Journal published an article titled, “High Cost of Wildfire Insurance Hurts California Home Sales.” The article discussed rising insurance premiums associated with houses in fire-prone areas. It used examples of a real estate agent in Pollock Pines, California and a nursing student trying to sell her house in Placerville, California, to exemplify how these insurance rates are affecting the housing market.

Both Pollock Pines and Placerville are small communities east of Sacramento that were affected by devastating wildfires that ravaged California in 2017. These cities are on the west side of the Sierra, but can be used as examples for what the climate could be doing to change the housing market in California.

One real estate agent in Pollock Pines named Lauralee Green claimed she sold $4.7 million worth of real estate last year compared to $8.8 million in 2018 and told the WSJ, “I’ve had so many deals fall through.”

The issue is slowly making its way to the Eastern Sierra as two homes in Swall Meadows recently had insurance-related glitches in the middle of Escrow. Dennis Cox, of Mammoth Realty Group, dealt with the situation hands on. “My buyers applied to 15 different insurance companies and got denied every time. They finally found a provider, Nationwide, who had them install smoke/security alarms as part of the deal.”

Swall Meadows has certain issues that insurers are aware of as Eric Olson of Olson Insurance told the Sheet that a high-risk fire area with no fire hydrants can make the insurance situation sticky. 

Two things causing red flags when insurers are filing paperwork. Even if the house is currently insured, a sale can reset the insurance issue. “The sellers (in Swall Meadows) thought it wouldn’t be a problem as they already had a policy on their house but when we called the insurers that previously helped them (sellers) they denied the coverage to the new buyers,” said Cox.

“The problem is no one is writing new policies,” Cox said as he estimated that there are only 1-2 houses per year being sold in Swall Meadows. If new policies are hard to get, the difficulty of getting insurance might be hard to spot in an area where property insurance is uncommon.

Matthew Lehman, of Mammoth Lakes Real Estate, told the Sheet, “I haven’t had anybody back out yet but it’s come close.” Lehman has worked as an appraiser and said an evaluation for stigma of fire can lower the price of houses in certain areas.

Lehman finished with, “It (houses in fire prone areas) hasn’t affected us yet. There are some insurance companies who are not willing to do a fire insurance in this area but we haven’t run into it.”

Cox believes the problem is not just in Swall Meadows, “June Lake has been difficult too. We had an insurance issue that we narrowly avoided not too long ago.” Then Cox said, “It will be a problem going forward,” in regards to fires changing the evaluations/ insurance availability in certain areas.

Brett Walters, who runs his own insurance agency in Mammoth,  told the Sheet what happens in these scenarios, “If a carrier says ‘we can’t write this for you,’ the carrier would tell them about the California FAIR plan.”

‘FAIR’ is an acronym for the California Fair Access to Insurance Requirements and was created in 1968 after a series of brush fires and riots made certain properties uninsurable. According to the FAIR plan website “It is an insurance pool established to assure the availability of basic property insurance to people who own insurable property in the State of California and who, beyond their control, have been unable to obtain insurance in the voluntary insurance market.”

Eric Olson, an insurance agent in Mammoth, told the sheet, “You can always get the California Fair Plan to cover fire insurance.” Olson said that it gives the customer a much broader coverage but also a scaled down version of the coverage a normal property insurance agent could give you. The FAIR plan might not have things like theft insurance or water damage depending on what area you live in.

The FAIR plan receives no money from taxpayers and is “backed by the capital and surplus of all insurance companies writing property insurance in the state,” according to their website. All insurers providing property insurance are affiliated with the FAIR plan and it is known as a “shared market plan.”

Unfortunately, for Cox and his buyer, the FAIR plan quoted the Swall Meadows house for a policy in the range of 3-4x a normal insurance policy at $8,000 a year.

Walters knew this when he said that the, “Fair plan is a last resort, it is a type of safety net,” and also that if the buyer doesn’t feel the FAIR plan is providing adequate insurance coverage, “…insurers can provide supplemental coverage,” known as wraparound coverage so the policy can fit the appropriate needs of the buyer.

But with the FAIR plan sometimes being 3-4x the amount as a normal policy it is a positive that the issue was avoided for Cox. As wildfires become more prevalent and insurers are less willing to provide coverage to certain homes Cox simply offered one piece of advice, “While they are making an offer on a home, they should also be getting an insurance quote at the same time.”

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