Covid has changed the way many of us live and work. Some believe Covid simply accelerated long-term trends, and others believe things will soon get back to “normal.” Either way, those of us in the insurance industry are seeing the most real estate activity we’ve seen in a decade. What’s going on?
• People are moving from higher tax states (CA, NY, IL, NJ) to lower tax states (FL, TX, NV, AZ).
• Within states, some people are moving from big high cost urban areas (like NYC/SF/LA) to lower cost mid-sized towns.
• Within metros people are moving from cities to suburbs.
• More recently, others are looking for value in cities as rents move down.
• Companies are looking for lower cost venues for operations.
• Work from home is allowing for more location flexibility.
• Second homes are being viewed as safety getaways, not just recreation.
• Baby boomer retirement wave is peaking.
• Low mortgage rates and high home prices are motivating action.
• Home design features of 10-30 years ago are looking tired next to today’s trends.
Bottom line, people are on the move! If you’re thinking about moving, buying real estate or renovating, read on to learn about insurance implications.
Buying Property
Insurance is regulated by the state and most agents can operate in only one state. Finding an agency that is licensed in all states is ideal, so you can have a single point of contact for all your insurance wherever you are. And an agency that represents multiple carriers is also an advantage, so they can offer options.
Even with those options, there can be issues. Wildfire risk is a big deal. If the CA, AZ or CO property you are considering is in or near a wooded area, especially if there was ever wildfire in that area, your insurance agent can do a location check to see if it can be insured. In CA there is a “FAIR Plan” that provides basic fire insurance to homes otherwise uninsurable (up to $3mm limit on the sum of all coverages). There is no FAIR Plan in AZ, CO and most other states. There may be some clients with properties no insurer will take, and others who are paying over $100k per year for homeowner’s insurance.
Moving and Interim Renting
Remember that your personal liability coverage is attached to your homeowner’s policy. So if you move you don’t want to cancel your policy before establishing a new one. If you haven’t found a new home, your insurance agent can arrange a renter’s policy which includes personal liability. And you need contents coverage when you move. If your moving van flips over and destroys your possessions, the movers pay by the pound…pennies on the dollar of actual value!
Renovations
Standard homeowner’s policies are priced to cover furnished homes where no construction is taking place. If you’re changing out a sink or carpet, your policy coverage is unaffected. But if you are doing renovations, you need a special course of construction policy. Further, if your property is vacant (no furniture) for over 60 days it becomes what the industry considers an “attractive nuisance” for thieves, vandals and squatters, so you would need a special policy for that. Ignoring these occupancy classifications will leave you at risk of a claims denial.
Insurance Pricing
The price you pay for homeowner’s insurance is affected by many factors. Here are some general observations about the various states:
• Premiums/$000 value are highest in tornado prone states (OK, KS, AK, SD).
• Rates are also high in hurricane prone states (FL, LA, MS, TX).
• Florida allows insurance benefits to be assigned to contractors which increases fraud and drives rates even higher.
• California rates would likely be highest if you included earthquake, but earthquake is not covered by base homeowner’s policies.
• Homes no insurer will cover are most likely to be in high fire risk regions of Western states outside CA like AZ and CO.
Now if you live in CA you might think premiums are pretty high even without earthquake and you would be right. The state tries to keep rates down though their approval process. But if the state “admitted” carriers can’t make a profit, they’ll find reasons not to sell or pull out altogether. That leaves what is known as the “E&S Market” which are carriers like Lloyd’s of London outside state oversight. They can charge higher rates but aren’t part of the state guaranty fund that protects policyholders in the event of a carrier bankruptcy.
Conclusion
There many reasons people are on the move, and an insurance agent’s job is to arrange your protection regardless of the reason. If you’re one of those people, don’t wait until the last minute and risk an insurance surprise. Let your agent know what you’re up to a little ahead of time and they’ll work out an insurance solution for you!
Carrie Babij is President of Desert Insurance Solutions – with offices in La Quinta, California and Scottsdale, Arizona – and has more than 25 years’ experience with high net worth personal and commercial lines of insurance. For more information, contact Carrie at carrie@desertinsurancesolutions.com
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