California’s rental housing owners face unprecedented insurance challenges

The insurance market in California is experiencing significant shifts, creating challenges for rental housing owners. These changes include reduced availability of insurance options and increased premiums. As an insurance provider for the California Apartment Association, we at CAA Value Insurance understand these complexities and offer guidance on navigating this turbulent environment.

The challenges

Several notable challenges in the California insurance marketplace include:

  1. Natural disasters: Extreme weather events cause severe property damage. The frequency and severity of these catastrophes continue to rise, with global insured losses from natural disasters expected to exceed $100 billion.
  2. Inflation: Inflation has significantly impacted commercial and personal property insurance, leading to higher premiums and claims expenses. It has also increased property replacement cost valuations.
  3. Reinsurance capacity challenges: As natural disasters become more severe and inflation remains high, property reinsurers face increased claims and reduced profitability. This has led some reinsurers to reduce capacity for catastrophic exposures and increase primary insurers’ premiums.
  4. Multiple agents: Limited carriers and the need for creative shopping can lead to multiple agents working on the same location(s), potentially blocking each other from carriers. Agent selection is crucial in this market to avoid inadvertent blocking.
  5. Broker of record letters: A “broker of record” (BOR) letter designates a specific broker as the official representative of the insured for a particular policy or set of policies. Once signed, this letter can prevent other brokers from negotiating or placing coverage with insurers, limiting the insured’s options.

Strategic steps for landlords

Despite these challenges, rental housing owners can take strategic steps to protect their interests:

  1. Maintain property conditions: Keep your property in good condition and promptly address building issues. Provide all relevant loss control documentation, safety upgrades, and mitigation strategies to your agent when shopping.
  2. Work with a knowledgeable broker: Choose a broker who can navigate this insurance environment successfully and explain the implications of signing a BOR letter.
  3. Analyze catastrophe exposure: Implement adequate mitigation and response measures if your property is located in a disaster-prone area.
  4. Insure to value: Review the replacement cost of your property. Inflation necessitates higher replacement cost valuations. Ignoring this could result in a coinsurance penalty at the time of loss. Consider the deductible amount you are comfortable with.
  5. Start early: Begin the process early, as most insurance carriers start accepting new business submissions 90 days before the current effective date. Provide your information early to increase your chances of receiving a quality quote.
  6. Stay informed: Keep up to date with industry trends and practices to better protect your interests.

Consider the CAA Value Insurance Plan

In the current market, CAA understands the frustration rental housing providers face in maintaining existing insurance or finding new coverage. The CAA Value Insurance Plan may help.

Despite rising premiums, the CAA Value Insurance Plan continues to write policies and could be a viable solution for your insurance needs. For more information, visit the CAA Value Insurance webpage or call 866.913.6293.

Navigating the current insurance crisis requires rental housing owners to be informed and strategic. By understanding market dynamics and potential pitfalls, you can make more informed decisions and better safeguard your properties. The California Apartment Association and its insurance partners are here to support you through these challenging times, ensuring you have the resources and guidance needed to secure the best possible coverage.

Disclaimer: Information used for quotation purposes ONLY and does not contemplate coverage bound. CA License: CA0F71902

Lisa Isom (CA license # OE94118), chief operating officer for the California Apartment Association’s Value Insurance Plan (CA license # OF71902)