California urged to help condo owners hit by high insurance costs

Eighteen state senators from across California are urging the Department of Insurance to provide a lifeline to a growing number of condominium homeowners associations struggling to find affordable property insurance due to wildfire risk.

The lawmakers, led by Senate President Pro Tempore Toni Atkins, D-San Diego, co-signed a letter on Feb. 6 calling for Insurance Commissioner Ricardo Lara to use his executive authority to boost the California FAIR Plan commercial coverage limits from $8.4 million to $20 million. The increase aims to provide relief for some condominium HOAs near canyons or open spaces that have seen rising insurance premiums for less coverage.

“Constituents have reported special assessments of thousands of dollars per year, and in some cases, premiums of nearly $1,000 per unit, per month just to maintain the master policy of their housing development,” wrote the legislators. “This is an untenable situation, potentially affecting millions of California homeowners.”

The FAIR Plan is a pooled risk program backed by all state-licensed property insurers. Its goal is to provide a temporary safety net of basic fire coverage when regular insurance becomes hard to find in the marketplace.

That is increasingly the case for suburban condominium complexes that have been deemed vulnerable to wildfires — including several in San Diego County.

In January, Farmers Insurance declined to renew the property policy for Morada, a 338-unit condo community in Rancho Bernardo. Under last year’s policy, the HOA bought $73 million in coverage for $133,000.

When the association shopped for a replacement policy this year, the best it could cobble together was $10 million in coverage on the secondary insurance market for $885,000 a year.

Morada’s HOA has explored bringing its coverage level up to $80 million — roughly equivalent to last year’s policy given increased construction costs. The premium price tag would be $2.68 million.

That would require a special assessment on average of $8,000 per unit for Morada’s homeowners — many of whom are young families or seniors living on fixed incomes, according to a letter that an HOA board member posted on the Morada’s online chat site.

“Obviously, we are in a bad position unless we can find some other way” to secure insurance, said Sam Spooner, 85, a resident at Morada for more than a decade who is not on the HOA board. “Eight thousand dollars per unit. That is a stab in the gut right there.”

The HOA has yet to decide on whether to increase its coverage amount. But there are potential downsides to being underinsured, including making it more difficult for homeowners to sell. Lenders may balk at approving mortgages for potential buyers unless they purchase expensive, additional coverage on their own.

Morada isn’t alone. Last year, Farmers declined to renew property coverage for Canyon Park Villas, a 240-condo community in Mira Mesa, because of wildfire concerns. Its HOA was unable to find a replacement policy from state-sanctioned insurers — such as Farmers, State Farm, Travelers, AllState and Nationwide, among others. So, the HOA sought out coverage on the secondary or surplus market, which has much higher premiums.

The result: Canyon Park Villas annual insurance bill went from $47,000 for $50 million in coverage under Farmers to $600,000 for $10 million in coverage from Lloyds of London and Axis — a 13-fold increase.

To pay for the insurance hike, the HOA enacted a $2,500 emergency special assessment in October on condo owners.

Villa Monterey in Tierrasanta also has been impacted, according to CBS 8. And a 220-unit condominium HOA in the San Marcos area, whose president asked not to be identified for privacy concerns after consulting with legal counsel, said his community also wasn’t renewed by its state-licensed insurer and had to find coverage on the secondary market — boosting its annual premiums from about $40,000 to $900,000.

Though they’re residential, condominiums are typically covered with commercial insurance. Increasing the FAIR Plan commercial coverage limit to $20 million could help some condo HOAs during the current market turmoil, though not the larger communities. The step is not considered a permanent fix, according to the letter that lawmakers sent to the insurance commissioner.

“We recognize that this is a partial and temporary solution that must be paired with continued statewide efforts to mitigate wildfire risk and improve the availability of insurance in the traditional marketplace,” wrote the lawmakers, including Sen. Steve Padilla, D-Chula Vista. “However, this action is urgently needed to prevent further displacement and protect homeowners throughout the state.”

In a statement and Twitter post, Lara said he appreciates the Legislature’s support for his continued efforts to modernize the FAIR Plan to meet new challenges.

“Insurance is about safety and, hearing from homeowners and businesses, we are creating lasting solutions to protect Californians from climate change,” said Lara. “Expanded coverage options for HOAs and community associations, including a stronger FAIR Plan, is a top priority for my new term. We have to hold insurance companies accountable to covering Californians. We want them to be part of the solution, not the problem, and work with us to protect homeowners and businesses.”