A BLAST FROM THE PAST: It’s been 11 years since a wildfire threatened almost 40 homes near Ivy Drive, but thanks to the concerted efforts of the California Forestry Department (CFD) and the Moraga Orinda Fire Department, a timely blast of fire retardant ensured that flames were soon extinguished and nobody got hurt.
Mark Twain is often credited with defining a banker as “a fellow who’ll lend you an umbrella when the sun’s shining, but asks for it back the moment it starts to rain.”
Many Orindans might say the same principle applies to insurance companies.
Around 40 years ago, according to Fortune magazine, the United States averaged eight “major weather events” annually, resulting in at least $1billion in damage.
Over the years, that figure slowly crept up until, by 2018, it had more than doubled. And as the mercury in the thermometer continued its relentless climb, so did the number of droughts, wildfires, hurricanes and earthquakes, each precipitating a massive insurance payout, until last year’s costly catastrophes numbered 23.
As a result, the willing hands that had previously extended those rainy-day “umbrellas” were quietly withdrawn, and the once-reliable insurance companies calmly began issuing non-renewable notices.
Widespread Insurance Non-renewals in California and Orinda
On March 20, thousands of loyal and long-term State Farm policyholders opened their mailboxes to discover that the trusted insurance giant had decided not to renew a whopping 72,000 policies in California.
It felt like a zip code decision, particularly in Orinda. Although 94563 has always been one of the East Bay’s most coveted cities, 55% of State Farm’s Orinda customers (amounting to 1,703) were suddenly left scrambling to find acceptable replacements. They expected to pay more, but many were unprepared for a four – sometimes five – figure increase.
With seven of the big insurers: State Farm, Allstate, Farmers, USAA, Travelers, Nationwide and Chubb limiting coverage in California, and many leaving the state altogether, many homeowners now find they have no alternative but to settle for the California FAIR (Fair Access to Insurance Requirements) Plan.
Also known as the “insurance of last resort,” this state-mandated solution provides coverage to anyone unable to obtain insurance in the regular market (see May 2024 The Orinda News for fuller explanation of the FAIR Plan).
Sticker Shock and Musical Chairs
The current sticker shock that sent everyone reeling can be partially blamed on Prop 103, an insurance measure that was voted in, 51% to 49%, on November 8, 1988, which gave consumer advocates the right to challenge any proposed new insurance rates over 7%. This proved to be so time-consuming that insurers preferred to cap any increases at 6.9%, which led to relatively low insurance premiums.
It is these “decades-long neglected issues” that California Insurance Commissioner Ricardo Lara is seeking to change with his Sustainable Insurance Strategy, which he hopes to have approved and in place by December 2024.
In the meantime, Orinda resident, Michael Brown, summed up Orinda’s situation as “a game of musical chairs, where all of the chairs are going to go away at once and we’re going to be perched on the rickety stool with a torn seat known as the FAIR plan.”
So for now, it appears that the only way to deal with the current insurance crisis is for everyone to dig deep into their pockets to pay for the higher priced FAIR plan. This approach is especially a problem for Orindans who have owned their homes for 30, 40, maybe even 50 years, and find themselves “property rich and cash poor” and badly hit by unexpected financial demands.
Impact on the Real Estate Market
As the “insurance crisis” evolved, dire warnings in the media predicted that California’s real estate market would be seriously affected.
John Glynn, a local mortgage loan officer, said while the withdrawal by some insurance carriers has “definitely affected the real estate business,” most homebuyers are still able to find coverage.
He admits that “the scarcer supply of options adds a new element of complexity and has changed the way that people shop for homeowners insurance,” but what has changed is that historically, “insurance was something that consumers could easily shop for fairly late in the home purchase process.”
“Now buyers are encouraged to research insurance options as soon as they’re interested in a property,” he said. “They can also use an insurance contingency in their offers to allow an exit from the contract if insurance can’t be obtained.”
He knows of a few cases where a buyer backed out of a contract due to insurance complications, but said they are not the norm. Although he has never encountered anyone actually being refused insurance, “sometimes you just have to take what you can get.”
So for anyone worrying that they may not be able to buy, or sell, he said that while the insurance crisis is causing “some headaches and wallet aches… it isn’t causing the industry to stand still.”
Christina Linezo, an Orinda realtor with Village Associates, agrees that Homeowners’ Insurance “has become more difficult and expensive to obtain on some properties … but not all.”
However, since obtaining insurance in the current market does sometimes increase the escrow period, Linezo never recommends removing this contingency until an acceptable plan and rate are obtained.
“Sellers and agents have become very understanding regarding this issue,” she said, “and although it takes time and diligence, it always works out.”
Local realtor Janice Colby confirms: “Buyers don’t seem to be afraid to buy … people are still moving and there is still a pent-up demand for housing.”
Mayor Gee Advocates for Orindans
But as anxieties increase in Orinda, locals want to know just what the City Council is doing to help, and Mayor Darlene Gee has lost no time in asking California’s elected officials the same question.
On April 2, Gee wrote to Governor Newsom, Insurance Commissioner Lara, State Senator Glazer and Assemblymember Bauer-Kahan to remind them that while “we in local government are not able to effectuate any changes to how this crisis will play out … our residents look to us to add our voices to the call for action. We know this emerging crisis is something you are working to address, but the time for action is now.”
She spoke for all Orindans when she reminded the letter’s recipients that the City of Orinda and the Moraga Orinda Fire District “are leaders in working to make our community more prepared and wildfire safe” and that “a one-size-fits-all approach that has proactive communities being impacted on the same level as those who are not taking steps to reduce risk, needs to be addressed.”
Gee also pointed out that “the lack of even basic information as to the scope and scale of the cancellations, and the reasons for those, is inhibiting proactive policy-making and leaves local elected officials and our residents in the dark.”
Jim Leung, a senior insurance compliance officer with California’s Department of Insurance, responded to Gee with a letter that said little and offered no real solutions.
Gee was not happy and is going to continue to work to demand more from their office.
“Given the magnitude of the insurance situation impacts in the City of Orinda, it is extremely disappointing that Commissioner Ricardo Lara believes that sending us a ‘form letter’ is an adequate response to our concerns and questions,” she said. “As an elected official, I believe Commissioner Lara owes his constituents a much better acknowledgement of their situation, substantially more information about how residents can best handle their near term needs, and a better understanding of his efforts to improve the future insurance market.”
But despite the general anxiety, there may be one small silver lining: the ever vocal phalanx of residents opposed to adding more housing in downtown Orinda, which they worry will prevent wildfire evacuation, will perhaps be pleased to learn that at a recent meeting of the League of California Cities East Bay Division, Gee asked Rob Bonta, California’s Attorney General, an uncomfortable question.
“I know that it is not his bailiwick to do insurance,” Gee said at the April 30 City Council meeting, “but it is his to enforce housing elements, so I confounded him to the greatest extent that I could by asking how you can build new housing if you can’t insure it.
“He did point out that it was a very good question. But he had no answer for it.”
Part III: Working Toward Solutions to the Insurance Crisis.