California Wildfires Impact HOA Insurance

July 10, 2023   

Droughts, earthquakes, and wildfires have plagued Californians for decades. Insurance companies are cutting homeowner coverage due to the state's recent wildfire season. According to the 2020-2021 U.S. National and State Statistical Review, released by the Foundation for Community Association Research, this might affect 14 million Californians residing in over 49,000 community associations.

The Wall Street Journal reports that some insurers are upset because California regulators compel them to calculate home insurance prices based on previous loss experience rather than catastrophe modeling. State regulators think existing rate hikes are sufficient for insurers.

Community association governing documents usually require the board to purchase and maintain a fire and casualty master policy. “As the market for fire insurance tightens and policies become more expensive or nonexistent, boards will struggle to meet their obligations under the governing documents to obtain insurance, at least not without significant assessment increases to cover rising premiums,” says Matt D. Ober, partner at Richardson Ober DeNichilo in Pasadena, Calif., and a fellow in CAI’s College of Community Association Lawyers (CCAL).

Wildfires devastated California, Colorado, Texas, and Arizona. Ober says limited coverage and hefty rates require legislative action. “No mandatory brush clearance or fuel modification zones will eliminate the unimaginable impact of uninsured communities in fire-prone areas,” he says.

Joel W. Meskin, managing director of community association products at McGowan Program Administrators in Fairview Park, Ohio, and a CCAL fellow, says insurance companies' only option is to drastically raise prices.

Ober says boards cannot continue without fire insurance, therefore they must either drastically raise assessments or impose a special assessment to pay for it. “And a community cannot self-insure for a catastrophic fire loss,” he says.

How can residents safeguard their homes?

Meskin advises community association insurance professionals and proactive fireproofing. This means building or buying a home with a composite or title roof and avoiding shingles and shakes because ashes or fires will burn them. Meskin recommends boards to communicate to nearby communities and their local CAI chapter to run a wildfire mitigation program.

Ober advises residents to evaluate separate coverage and talk with their agent or broker to ensure they are adequately protected from damage and responsibility in the case of a fire, despite the association's fire coverage. Consider secondary property loss and liability insurance.

“Owners should ensure their separate interests policies provide loss assessment coverage to offset risks of an association special assessment to cover damage or the association claim deductible,” he says. Residents and the board should also investigate fire-protection products and adopt them immediately. 

CAI has additional resources for homeowners, visit Advocacy for Disaster Recovery 

Source: HOA Resources

Image: Getty 



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