LA Wildfires and the Insurance Crisis
from Martin Kojnok, neighbor and Realtor® in Maxwell Park
As wildfires and other climate-change-related disasters continue to impact homeowners in the US, homeowners are facing the challenges of ensuring adequate property coverage and safeguarding long-term property values. The recent event in Los Angeles has underscored two critical issues: Insurers have grossly mis-managed premium pricing, policy limits, and cash reserves to enhance stock performance in the face of increasing risk; and, many homes in wildfire-, and disaster-prone regions remain under-insured, leaving residents vulnerable when disaster strikes.
The Impact of the LA Wildfires
For the past 10-20 years, insurance carriers have been on a race to zero competing for market share to boost stock values. In practice, these strategies pushed policy premiums much lower than they should have been in relation to the coverage they promised to provide. Companies were betting “total loss” claims would be unlikely. If they occurred the collection of premiums across a wider region would offset the claims of isolated disasters sufficiently - which they are not. So, not only have these disaster events resulted in significant property damage and loss, they are now disrupting real estate values because insurers aren't solvent enough to cover the claims of properties which they insured - and thus must raise premiums for everyone.
The Hidden Challenge of Under-Insured Homes
Under-insurance is a major concern now too, because of the strategies insurers implemented. Many homeowners were issued policies that don't fully cover the potential damage from fire or other calamity in exchange for lower rates. The discrepancy between rebuild value and policy limits leaves many at risk for significant out-of-pocket expenses in the case of a loss.
Looking Ahead
Premiums rising are being seen as a correction, making up for years, if not decades, of undercharging and mis-management. For buyers, purchasing decisions will logically be affected as the actual cost of protection against disasters becomes a critical consideration of a property. For sellers, as the cost of protecting properties rises, it will tend to reflect as downward pressure on market values.
In light of this developing situation, I recommend as homeowners we:
Review and Update Our Coverage: Ensure that insurance policies accurately reflect the current replacement/reconstruction value and risk profile of your home.
Invest in Risk Mitigation Measures: Invest in fire-resistant materials, landscaping, and home hardening techniques to reduce potential damage. In our area, consider investing in seismic, electrical, and plumbing upgrades as well.
Stay Informed and Active: Monitor changes in insurance policies and market conditions by getting quotes every year or two and consult with experts to understand how this insurance crisis may impact your investment over time.
While the current environment poses challenges, informed and proactive measures can help mitigate our risks. As the market adapts to these pressures, staying ahead of changes will be key to protecting both your home and your investment.
I’m here in the neighborhood if you’d like to talk about how this and/or other factors might be affecting the local market. Always feel free to reach out if you’d like to talk about your home or are considering moving soon.
Until next time, Happy New Year, and dwell well my friends,
Martin Kojnok
CORCORAN ICON PROPERTIES
MBA | REALTOR® | DRE 01941661
martin@martinkojnok.com m: 510.593.3370 www.martinkojnok.com
