A growing number of California real estate agents are reporting the collapse of transactions because buyers are unable to obtain affordable homeowners’ insurance.
A new survey by the California Association of Realtors membership found 13.4% of respondents admitting at least one of their transactions fell out of escrow this year due to insurance challenges, up from 6.9% in 2023. Among the reasons on what went wrong, nearly three-quarters of the situations (74.7%) involved insurance not being available to borrowers while 17.8% involved premiums being too high.
Furthermore, 21% of realtor respondents said they had clients who are using the FAIR Plan, California’s insurer of last resort. Only three years ago, FAIR Plan policies accounted for roughly 3% of the total market.
Earlier this year, a data report from Redfin (NASDAQ: RDFN) found one in nine California respondents (10.7%) were dealing with insurance companies that stopped offering coverage for their home – in comparison, the national share of homeowners who recently lost coverage was 8.3%. California homeowners also reported a higher rise in their insurance costs versus the national average.
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This is becoming a nationwide issue. Texas realtors are also feeling the pain of transactions falling out due to high insurance. Perhaps it’s time to remove the last I from PITI. (Principal, Interest, Taxes, Insurance) and let homeowners decide if they are willing to pay for the insurance cost without it being part of the debt to income ratio equation.
Insurance of all types is out of control. Auto, home, and health. They either pull policies if your house isn’t perfect and new or skyrocket premiums everywhere so there is no ability to shop. And they love to claim it’s because of the increase in national disasters or large events like fires in California or Hawaii, North Carolina floods, hurricanes, etc, they are taking catastrophic losses, but those are very regional and not common. If you look at the P/C industry profitability in 2022 they posted $39 billion in profit, a little down, but profitable. Then they started jumping premiums big to counterbalance and in 2023 posted a record $88 billion in profit. In Q1 2024 they posted $40.3 Billion in ONE QUARTER. That is up 375% from Q1 2023. They are on course for $160 billion in profit. So I don’t want to hear any of this BS that insurance companies are trying to survive. They are robbing people and denying claims that are clear cut and cutting anyone they may have to payout.
I had a client who had obvious hail damage roof per at least 6 roofers and an independent inspector AND every roof around him was getting replaced from the hail and Allstate denied his claim and fought him for nearly a YEAR before agreeing to replace his roof.
I’m capitalist, but not when it’s things people are FORCED to have. Insurance isn’t a byproduct of capitalism. Capitalism is when you create a product and due to supply and DEMAND increase for profit, but there isn’t a DEMAND for insurance. It’s not some great product we’re saying we want more of, it’s a necessity that is required. Due to loans or the government we are forced to have insurance. If many weren’t having their employers pay health insurance, you’d realize what an absolute con job it is between hospitals and insurance companies and when you go to foreign countries it’s even more apparent how as citizens we are treated like trash despite spending tens of thousands per capita annually, exponentially more than every other country. As Americans insurance is a big reason why everything is more expensive if you think about it and it often goes unrecognized as a contributor. When people’s lives/health are at stake it needs to be brought into regulation.
As a young family of 5 and self-employed, we pay $2500/month for health insurance. $30k/year with a $10k deductible. So we basically pay $40k/year before insurance really does much. My wife and I are 42 and have no major health issues. Our kids are 12, 9, and 5. For the first time, going over our finances we seriously are looking at going uninsured for the first time in our lives and just getting catastrophe insurance.
Something is incredibly broken with the system & costs if we are feeling like we’re better off without it. But over the course of 3 years, the potential savings of $120k is pretty substantial rather than being flushed on the insurance companies.
Home owner insurance scam:
Quote the soon to be buyer a premium. Buyer has to pay in full for this policy prior to closing. A few weeks after closing, hoi company sends out an inspector to inspect the house. Next thing the new buyer knows, their home owners insurance policy is greatly increased due to the bloated inspection findings. They have 2 options, first to submit and pay the increase or second start shopping for a new insurance provider. If they are lucky to find a new insurance provider, they will have to submit to a new inspection from that company and risk the same out come, while losing money (not all of the premium is lost, but a big chunk of it is) on the policy they had to pay in full for in order to close on their new home. This should not be legal but the insurance lobbyist pay real well.
God forbid the Seller has errant claim picked up on CLUE Report. Dealing with Nexus Lexis to have error corrected takes forever. Unfortunately, Buyers’ commitment lapses.