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Wildfires drive insurance costs, non-renewals upward in Monterey County

Higher premiums not a deterrent to most high-end property buyers as median price hits $860K, amid shrinking inventory, record-low mortgage rates, work from home options that fuel hot market

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MONTEREY – In the wake of recent Monterey County fires, along with numerous other wildfires throughout California, many homeowners continue to be hit with non-renewals or steep increases in their insurance coverage, adding pressure to already dire situations for some.

“It’s growing increasingly worse,” said Dan Hoag, Monroe Insurance Brokerage president in Carmel. “Companies continue to withdraw in many areas.”

Insurance companies still underwriting in fire areas are doing so with heavy limitations and high premiums of up to $25,000 to $30,000 or more.

About 8,834 fires have destroyed or damaged 10,488 buildings, killed 31 people, and burned 4,149,345 acres in California so far this year with more than two million homes in the state are considered to be in high or extreme risk of wildfire.

In 2019, residential non-renewals by insurance companies increased statewide by 31% and FAIR Plan policies increased by 36% from the previous year. The FAIR Plan was established under California law as the homeowners’ “insurer of last resort.”

“If you’re in one of those higher classes of areas, a lot of carriers are not renewing or are increasing rates and a lot of clients are forced to look to alternate types of insurance,” said Melissa Langley, vice president of Leavitt Central Coast Insurance in Salinas.

Langley said a client in the Saratoga area with a commercial building in proximity to a wildfire zone is looking at premiums increasing 700%.

Last week the California Insurance Commissioner Ricardo Lara held a “virtual investigatory hearing” to initiate a series of regulatory actions aimed at stabilizing the insurance market, protecting lives and homes, reducing catastrophic wildfire losses and increasing transparency for consumers. The plan is to push for incentives for mitigation, establish statewide standards for hardened homes, create fire risk scores that are transparent and require insurers to seek adequate and justifiable rates to protect market solvency.

Last November, Lara ordered the FAIR Plan to offer a comprehensive policy with traditional homeowner features such as coverage for water damage, theft and personal liability. In February a judge ruled against the order.

According to the FAIR Plan website, “the maximum limit for all coverages combined is $3 million at any one location. There are times when an insured will purchase an additional insurance policy in addition to the FAIR Plan policy. This is typically either an ‘Excess’ or ‘Difference in Conditions’ policy. The existence of those types of policies does not impact the coverage provided under the Dwelling policy.”

People on fixed incomes that have lived in their homes for many years or those that are already having a hard time paying their mortgage cannot afford a 30% to 50% increase to their insurance, said Langley.

“Things have not gotten better and with what we just went through, it will get worse,” said Langley.

But it is not just those living in high-risk areas that are facing increased insurance premiums.

A report in June from ValuePenguin.com by LendingTree found that in 2010, the average annual cost of homeowners insurance across the country was $909. As of 2020, ValuePenguin analysts estimate that the average cost of home insurance is $1,445 – a total increase of 59% over the last decade.

The report projected insurance rates in California would increase an estimated 6.3% in 2019-2020, but that was before this year’s catastrophic wildfires that set a new record for acres burned and could cause premiums to jump even higher, some say 10% to 15%.

For those considered to be in fire risk areas, the cost of coverage could increase 30% to 60% or more, depending on factors involved in determining risk by the insurance companies including proximity to forest and brush, roof type, water and road accessibility and slope. Even if the insurance company is still willing to underwrite, the policies would come with heavy limitations and high premiums in those areas, such as Corral de Tierra, San Benancio, Carmel Valley, Carmel and Big Sur, with Pebble Beach, Pacific Grove and Monterey, becoming increasingly affected.

“It will be interesting to see what happens,” said Hoag. “Are some of these insurance companies going to pull out completely?”

In Monterey County, a triumvirate of buyer demand, dwindling inventory, and record-low mortgage rates continue to fuel the real estate market. Reportedly the prospect of high insurance premiums is of little deterrence for most.

“It’s a factor, but so far it hasn’t really been a deciding factor,” said Doug Steiny, Sotheby’s International Realtor in Carmel. “Insurance has gone up significantly but it has not crippled anything yet.”

Steiny said he knows of three major insurance providers in Carmel Valley – AAA, State Farm and Farmers insurance companies that have increased fire insurance premiums double and triple what they had been.

Steiny said it is a seller’s market with a different kind of buyer and sees it as part of a shifting social demographic of people, mostly from the San Francisco Bay Area, who are looking to continue to work from home in an environment that is calmer, safer, and cleaner. He estimates that about 75% are not retirees but active workers with families who would not have considered a move like this a year ago.

The realization during the COVID-19 pandemic that working from home is a viable option, in some cases a permanent one, that allows people to live wherever they want is added fuel to the hot real estate market in Monterey County.

The median sales price in September for a single-family home in the county increased 31% over last year to $860,000. Inventory was down -33% compared to the same time in 2019 with closed sales increasing 59%.

“Working from home changed the whole game, big time,” said Steiny.

Mark Bruno, Keller Williams Real Estate agent in Pacific Grove said, “The market has been nuts! With the buyers we’re encountering now, the least of their concerns is insurance prices.”

Bay Area buyers don’t need to live where they work and can work from here where they are capable of finding more affordable properties compared to where they’re coming from, said Bruno.

That is the buyer demand that is driving up prices.

“We talk to them about insurance that could be about $4,000 a year and they don’t bat an eye over it,” said Bruno.

But that leaves properties that were once considered affordable increasingly out of reach for locals trying to make a move up into something bigger or nicer. That increase in insurance cost for people on a budget will most likely be a deal-breaker.

What people from other higher-priced areas see as getting more bang for their buck coming here, people such as first-time homebuyers who might be considering a $550,000 home will have to consider the added 10% or more because of the cost of insurance.

“That is significant for that price range,” said Bruno. “For higher-end properties, it doesn’t seem to be an issue which is creating a bigger divide.”

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