This quarter, we gained valuable insights on homeowners' insurance from a panel discussion organized by Magbit Professionals in Real Estate and moderated by Shahrad Nahai of Nahai Insurance Services, featuring leading insurance experts Jonathan Sokol (Greenberg Glusker LLP), Bijan Nahai (Nahai Insurance Services), William Rafert (Apex Public Adjusters, Inc.), and Andrew Rosenfeld (Canon Insurance Advisers LLC). Their expertise underscored a fundamental shift in the risk management landscape, emphasizing the critical need to comprehend the evolving insurance market for regional projects. Here are four key takeaways for navigating this scenario.  

1-    Increased insurance costs: Insurers still operating in high-risk areas are significantly increasing premiums and deductibles while lowering coverage limits. Deductibles have reportedly more than doubled in the last five years. Securing adequate insurance coverage at a reasonable cost is becoming a more significant factor in the feasibility of new projects, particularly in higher-risk areas. Lenders must pay even closer attention to insurance arrangements as a critical factor in project approval. 

2-    Impact on rebuilding efforts: The process will be significantly more complex and costly for homeowners choosing to rebuild. On the one hand, many existing homes were built under less stringent fire codes, so they now must comply with stricter fire codes. This means costs will rise significantly, almost doubling in some high-risk spots. Furthermore, the added burdens of debris removal and potential labor shortages will further inflate rebuilding costs. 

3-    Rising property values: The significant increase in property values (around 40% in recent years) caused many insurance companies to remain at historical prices. Consequently, many homeowners' existing insurance policies, which hadn't been updated to reflect these increased values, are now insufficient to cover the actual cost of replacement. 

4-   Regulatory landscape: The California Department of Insurance is actively working to address insurance challenges through various measures, including non-renewal moratoria and efforts to modernize the FAIR Plan. This policy is the state's insurer that provides basic fire insurance for homeowners who are unable to obtain coverage in the traditional market. Since 2020, the number of policyholders under this plan has doubled. 

“There are so many nuances to the insurance industry which many people just turn a blind eye to because they don’t understand their policies. Now is the time take your insurance seriously to protect yourself, your family and your investments.” David Chasin, Chief Executive Officer at Pegasus, breakfast sponsor and attendee.

Navigating this new insurance reality will require careful planning, proactive risk management, and a thorough understanding of the evolving regulatory environment for all stakeholders in the construction industry.  Our specialists have an extensive track record working on projects in California. Visit our portfolio and contact us to take your project to the next level.