Harsh weather and natural disasters have been a real challenge for communities in all parts of California, from droughts to earthquakes to wildfires. California’s most recent wildfire season is pressuring insurance companies to cut back on coverage to homeowners. According to estimates from the 2020-2021 U.S. National and State Statistical Review, published by the Foundation for Community Association Research, this could impact the approximately 14 million Californians living in more than 49,000 community associations.

According to The Wall Street Journal, many insurers are frustrated that California regulators require them to set home insurance rates based on their historical loss experience, not projections of future losses that are determined by catastrophe modeling. State regulators say insurers can obtain adequate rate increases under the current system.

Usually, community association governing documents require the board to obtain and maintain a master policy for fire and casualty insurance. “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, a fellow in CAI’s College of Community Association Lawyers (CCAL).

California, Colorado, Texas, and Arizona have seen massive losses due to recent wildfires. Some type of legislative effort must be put forth to address the impact of lowered coverage availability and high premiums, states Ober. “No mandatory brush clearance or fuel modification zones will eliminate the unimaginable impact of uninsured communities in fire-prone areas,” he says.

The only choice for insurance companies right now is to significantly raise premiums. This means that boards will have to either significantly increase assessments or levy a special assessment to fund the fire insurance premiums or be without coverage, which they can’t do, says Ober. “And there is very little chance of a community self-insuring for a devastating fire loss.”

What can residents do to protect themselves and their homes?

Talk to a community association insurance professional and be proactive in fireproofing measures. This means building or buying a home with a composite, tile, or metal roof and avoiding roofing such as shingles and shakes, as ashes or flames landing on this type of roof will burn it. Talk to other communities in the area and connect with your local CAI chapter to conduct a program specifically on wildfire mitigation.

Ober recommends that residents review separate coverage and consult with their agent or broker to make sure they are fully protected from loss and/or liability in the event of a fire, considering the association’s existing fire coverage. Secondary property loss and supplemental liability insurance are options to consider.

“Owners should make sure 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 adds. In addition, residents and the board should research products on the market that protect against fire damage and implement them as soon as possible.


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