Pasadena’s Fire-Prone Neighborhoods Face Insurance Uncertainty

It is more challenging today for Pasadena residents to protect their homes as insurers are becoming reluctant to cover properties citing disaster risks. 

Just recently, State Farm Insurance Company, the largest homeowner insurance company in California, announced it is no longer offering new homeowners policies for residents of the state.  This comes a year after Allstate Corp also stopped new policies.

State Farm said it made this decision due to “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”

Home insurance is an important step of purchasing a home. In most cases, lenders mandate buying homeowners insurance before the loan closes and maintaining coverage for the life of the loan to protect their investment. 

Without insurance buyers could be forced to make an all-cash purchase. 

Geoffrey Baum from West Pasadena Residents Association (WPRA) said the decision by major insurers is concerning and could result in soaring premiums.

“If there’s one less insurance company that is not providing coverage, then that’s going to make the other insurance companies charge you more,” he said. 

“It’s going to add to the cost of housing in our area, especially those of us in West Pasadena.”

As of now, he has not heard members of WPRA say they are losing their policies or having trouble obtaining a policy. 

“My hope would be that we all look at it together. Are there regulatory issues that make it harder for insurance companies to conduct business in California? That’s a statewide issue. Are we building in areas that are really prone to wildfires and should we reconsider what building permits get approved?”

Blake Longo, President of local insurance agency A. J. Longo & Associates, said the major insurers’ decision to stop issuing homeowners insurance in California will burden the marketplace.

“It’s bad news,” Longo said. “It puts an additional burden on the marketplace, which means that the availability of insurance will be more limited, forcing the cost even higher.”

Longo said on average, premiums increase by 30% each year.  Several factors can affect home insurance premiums, such as the type of home, location of the house, rebuilding costs, and risk of weather-related events.

“A water claim in a kitchen to remodel costs or something like that with expensive appliances, electrical wood floors, et cetera, is significantly higher now than it would’ve been seven years ago,” said Longo.

Since major insurance companies announced their decision to stop offering new policies, Longo saw an uptick in clients. 

Longo said local insurers are doing their best to address the needs of the community.

“We’re trying to do the best we can to find solutions for our customers. We’re also reaching out to the Department of Insurance to try to encourage them to be a partner with some solutions.” 

Longo expressed hopes the FAIR plan will further expand its coverage to be able to help more residents, with more carriers leaving the state. 

“The FAIR (Fair Access to Insurance Requirements) plan is a big resource right now, which is great. But we would like to see that coverage and that policy expand and be broader.”

The FAIR plan is a state-mandated property insurance plan that provides coverage to individuals and businesses that are unable to obtain insurance in the regular market due to their property’s risk factors or location.

FAIR plans were created as a response to the problem of insurance market unavailability, which occurred when insurance companies stopped providing coverage to high-risk properties in certain geographic areas due to a combination of factors such as natural disasters, changes in building codes, and rising insurance costs. 

To apply for a policy through the FAIR Plan, visit:  https://www.cfpnet.com/