On May 26, State Farm General Insurance announced that it would no longer offer insurance policies for California properties. State Farm was the last admitted carrier for homes in mid- to high-risk fire zones (with a 4 to 8 fire line score). These properties can be found in and around the East Bay hills, so this could be big news for home buyers and sellers. The story continues to evolve, but here’s what to expect.

 

State Farm was the last admitted carrier for homes in the aforementioned fire zones (Allstate started to quietly withdraw in 2022), and now only non-admitted carriers offer policies. With the significant reduction in the number of providers, pricing has already begun to increase. For example, just before the announcement was made, a Red Oak agent had a $2,500 quote for a property in a high risk fire zone. Just after the announcement, it increased to $14,000.

 

Given that non-admitted carriers have limited capacity, they are applying various restrictions to slow down volume. They are also tightening pre-underwriting for claims, older homes, and homes with roof or maintenance issues. If any of these providers become over-extended, they may exit the market as well.

 

But it’s not all bad news. Homeowners who currently have a home insurance policy with State Farm should not be affected by this change, at least in the immediate future. However, there may be increased premiums as policies renew over the next several months. And there is also the California Fair Plan, an alternative for fire insurance for high-risk properties when traditional insurance companies won’t provide it.

 

The changes that are occurring have an immediate effect on buyers and sellers. Buyers who are planning to use a mortgage are required to have insurance that covers losses from fire, so once they are in contract, they will need sufficient time to confirm their options (especially if they want the lowest price for a policy). And the higher cost could push them beyond their debt-to-income ratio, which could put their mortgage in jeopardy. While the California government negotiates with insurance companies, buyers will need to reset their expectations in terms of policy cost.

 

If you are looking to buy or sell a property that may be in a mid- to high-risk fire zone, reach out so we can put a strategy in place.