SF Chronicle: State Farm Leaves California
Sound Off
Appearing in the San Francisco Chronicle Real Estate Section
From time to time, the editors of the Real Estate section at the San Francisco Chronicle will ask leading area real estate agents their opinion and thoughts about various topics related to the Bay Area’s housing market. This is right up our alley given our track record, experience helping buyers and sellers in various parts of the Bay Area and given the fact that Kevin used to be a reporter and lawyer, so you know there‘s an opinion just waiting to get out.
This Week‘s Question:
How does State Farm’s decision to stop offering homeowner’s insurance in California impact residents?
Answer:
State Farm’s departure as a ‘good neighbor’ from California for new homeowner policies highlights the impacts of climate change and its costly consequences (despite this not being the stated reasons they gave). Other insurers have left before, but State Farm is the biggest. This mirrors what’s been happening in Florida and the fear is that same will happen here with more insurers leaving, raising premiums or paring coverage down leaving people with less choice. Ultimately, this could lead to a reliance on precarious state-sponsored insurance pools that only offer minimal coverage, as is the case for earthquake insurance.
State Farm’s withdrawal highlights how market actors can affect public policy in ways faster than lawmakers. Because home lenders require insurance for your home (and their collateral), insurers are empowered to designate certain areas as off-limits due to high risk, such as wildfire or flood-prone areas. Furthermore, insurers can effectively dictate property upgrades by threatening to drop coverage. For would-be buyers, it’s crucial to investigate a property’s insurability before writing an offer (TIC buyers especially). For homeowners, make sure coverage is adequate and current.
Read more about the topic below
This appeared in the Sunday, June 4, 2023 edition of the San Francisco Chronicle and on SFGate.
Insurance Makes the World Go ‘Round
A little more context about this oft-overlooked aspect of modern life and real estate
Insurance makes the world go ‘round. This from the former coverage attorney member of our team.
So many projects, ventures and professions would never get off the ground without insurance. Medical malpractice insurance anyone? Builder’s Risk? Insurance isn’t something most people won’t think about until it’s needed.
The concept of insurance is we all pay premiums to have protection in place if some unexpected peril befalls you and your home. Insurance carriers invest the money and pay claims with them pocketing any profit. In California the balance has for State Farm, it seems, slipped towards paying for more than they take in or earn. This is troubling because home lenders will not lend on an uninsurable property as those trying to buy in wild-fire areas up north or in Oakland only know too well. For buyers, it is an important element most neglect to consider.
Where Does All The Money Go?
The biggest sources of claims lately in California have been wildfire related. Remember, most insurance policies will not cover land movement (landslides) and earthquakes. Flood insurance is another type of state-sponsored insurance (only this one is run by the federal government).
WHO MAKES THE CALL
Could It Ever Pencil Out?
How could the underwriters say no?!
Insurance underwriting is a tough job with reams of data, loss runs, future predictions of changes to climate, population, economics, business, technologies and far more. What factors are weighted and which data matter is hard to figure out many times with decisions that can be baffling. This is why comparison shopping and informed decision-making as consumers matters so much.
Important Insurance Tips to Remember
It’s important to have adequate insurance in place. Part of that is to make sure you explore “code upgrade” coverage that would oblige the insurer to repair property damage to modern building code standards versus simple replacement.
If you have a live Federal Pacific brand electrical panel box, you will likely have to change that to something modern as that (now-defunct) brand of breaker boxes was determined to be defective posing fire risk.
We’ve heard of reports of certain TIC (tenancy in common) HOAs not being able to get insurance coverage.
While insurability is not its own contingency in San Francisco’s main purchase contract, it can be by written addendum. The San Francisco REALTORS are working on an updated version of the contract that makes insurability a contingency. Otherwise, the contingency is included in the inspection contingency’s ambit.
Home sellers are most likely obliged to disclose if a property is uninsurable as it’s a material fact that will matter to pretty much any buyer. But the thing is that while a seller may have insurance in place for a property, they are probably a legacy client. Any new coverage will require new underwriting and review that may yield a different outcome.
A seller is required to disclose if a property is in a flood zone among other kinds of risk (this is when buyers should consult and review the property’s natural hazards report). Sellers are also only currently required to disclose insurance claims relating to the property for 5 years prior.
For More Sound-Off Snippets...
1264 Church Street, San Francisco, a sunny, top-floor, 2-bed, 1-bath, 1-car parking garage space with ±1,284 sqft (per LiDar) as listed by Kevin Ho and Jonathan McNarry of Vanguard Properties. SF MLS 423910006. www.1264-church.com At the heart of this stand-out property is the newly renovated chef’s kitchen (designed for cooking classes and entertaining), the new bathroom, new, in-unit laundry, new stainless appliances, dual pane windows, wood floors and designer lighting. Combined with its 1935 Spanish-revival heritage in a sought-after Noe Valley location, 1264 Church is exceptional.
While acute market forces are curtailing new construction starts now, development here was already an uphill battle. Development timelines take years, so any non-NIMBY-related delays in adding new homes will keep housing prices high that much longer. But even for people who can afford to buy in the Bay Area, there’s a shortage of accessible destination homes for folks who are downsizing or ones who can no longer do the stairs in their 3-story Victorian.
