California E&S Insurance

Just bought in Oakland, house is in the hills roughly 1 mile from the perimeter of the 1991 fire that destroyed thousands of houses. I had a tough time getting insurance but learned a lot about how the industry works. Here's what I learned: 1. Rates are highly regulated in CA. Big carriers like Farmers, Geico, State Farm, etc cannot just charge people in higher fire risk areas 3X what they would charge people in lower risk zones to offset the increased risk. Because of this, the only way they can offset wildfire risk is by declining to cover new policies in these areas and dropping existing policies. 2. "Non-admitted" or "Surplus lines" carriers don't fall under as much regulation and basically can charge whatever they want. Many of them specialize in high-risk areas. This where many people who are dropped by big carriers end up going. Non-admitted carriers also won't be bailed out by CA if they go bankrupt so it's important to evaluate their financial strength. 3. Insurance companies use really crude methods to underwrite fire risk. Basically there are a few data sets out there that map addresses to wildfire risk. These are really low-resolution. Property-specific attributes don't matter nearly as much as you would assume they would, wood-frame vs masonry construction is the only major thing that makes a big difference. You can have a 100-yd perimeter of concrete around your house and every big carrier will still refuse to cover you based solely on the fire score of your address. I think [this is changing](https://www.insurancejournal.com/news/west/2021/06/16/618852.htm) but slowly. The good news is that if you find a carrier that uses a different model, they might cover you. 4. Fair plan is not as bad as is mentioned above. You can easily customize the coverage to make sure you are adequately insured. See [the calculator here](https://www.cfpnet.com/premium-calculator/). If going this route don't just rely on what some insurance agent tells you, DYOR and make sure you have the right coverage. Fair plan becomes much more affordable if you take the max deductible ($20k). I ended up finding pretty decent coverage at the last minute from a surplus carrier, was hours away from signing up for fair plan when that quote came through. It's about 2X what my friends who live in the "flats" pay but that seems appropriate given the risk. As far as the market, it's my opinion that in more desirable higher-price areas this is not that big of a deal. When you are talking about $1m+ houses the difference between $2k/yr insurance and $5k/yr insurance is not that big of a deal. My agent said that non-renewals have been an issue in this neighborhood for the past few years, but that it isn't driving an increase in inventory yet. Keep in mind this is CA, property taxes never rise so people who bought houses many years ago are paying low mortgages and taxes, many can afford insurance doubling or tripling. For lower-cost rural areas however this is a bigger deal. Why? Because insurance cost is based on home rebuild cost, not the total home cost. In rural areas, land is cheap and much more of the value of your house is the structure itself, rather than the land. This means that in rural areas insurance is going to be more expensive as a % of your mortgage costs always, so increases in insurance rates hit much harder proportionally than LA or the Bay Area where the land itself is absorbing a lot of the recent surge in housing prices. If you are going to buy in one of these areas, definitely try checking the address with major carriers first. Once you actually commit to a property, the best thing to do is to reach out to **multiple** speciality brokers who have access to the various surplus carriers and also are familiar with realistically estimating rebuild costs in your area. For NorCal I can DM some brokers who I found helpful.

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