HOAleader.com - Tip of the Week - May 19, 2023
Published: Fri, 05/19/23
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HOAleader.com - Tip of the Week - May 19, 2023
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In this week's tip, we discuss whether the scurry of insurers away from California community associations is the canary in the coal mine for condo/HOA insurance nationwide.
It's fire insurance that's causing problems in California, reports Ryan Gesell, CIRMS, CMCA, vice president of Cline in Los Angeles, who specializes in the community association insurance market. This isn't a new conundrum. What's new are insurers' actions in response.
"California is a standard fire policy state," he explains. "An SFP is a named-peril policy that has been rewritten, and there's now nothing that allows underwriters to exclude the peril of wildfire. They can't do that without breaching the California insurance code. We need the legislature to address that problem.
"And you can't blame carriers for not wanting to write risk in a high-brush zone or near it," says Gesell. "That's prohibited to excluded, and insurers can't jack up the rates. In California, they're not allowed to increase rates above what's on file with the department of insurance without permission.
"So the preferred carriers are just not going to offer coverage," he explains. "That means the only option for community associations is excess and surplus lines, or E&S, markets. Those are nonadmitted insurers domiciled somewhere outside California, and they have the freedom to adjust their rates without approval from the department of insurance, which is notoriously difficult to work with."
Now, E&S carriers operating in California are completely overwhelmed with submissions, says Gesell. "A large number of community association insureds are turning to E&S carriers, who are staring to limit their exposure," he says. "These E&S carriers keep getting burned—literally.
"They have a set amount of capacity they can offer so they can manage their risk," he notes. "They have to limit their exposure to protect their AM Best rating and don't want to be on the hook for a massive risk. So they use risk-modeling software that gives them the score of the potential risk of wildfire for a particular community.
"The model keeps adjusting year by year as more data is acquired," says Gesell. "The scale goes from 1 to 100, with 100 being the very highest risk. Maybe before they'd insure based on a risk score of 40 or 50. Now they're offering risks only up to 20 or 30."
The problem for condos and HOAs in California is that E&S carriers aren't obligated to even offer a quote on insurance. So the ability to even get a quote for a policy from an E&S carrier is being extended only to the best-protected and positioned communities.
What factors will affect your ability to get a quote and then coverage? Find out more—including whether our experts in other states are seeing similar challenges (they sure are)—in our new article: https://www.hoaleader.com/members/4701.cfm
Best regards,
Matt Humphrey
President
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