California FAIR Plan: Is the Property Insurance Market Finally Improving?

Aaron (00:00) Hello everybody and welcome to the Speaking of Insurance podcast. My name is Aaron Bollinger. Today Brian Bollinger (00:04) And I'm Brian Bullinscher. Aaron (00:06) we're going to be talking about property insurance in California. I know we've probably beat this horse dead a few times here, but there's actually been a recent statistic that's been posted that the California Fair Plan is now insuring $768 billion worth of properties in California. What do you think about that, Brian? Brian Bollinger (00:23) That's amazing. That makes them the largest, I think, insurance company. That's incredible. now the fair plan is not insurance company, just to be clear. It's a risk pool. Every admitted insurance company writing business in California is required to participate in its risk pool. So that means your Liberty Mutuals, your State Farms, your Farmers, your Mercury's, all the admitted companies, Chubb, you name it, right? Allstate, State Farm. Again, I think I said that twice. Brian Bollinger (00:51) Point being, they're required by law to be participating in it, which means if there's a claim, they all get to pay money out for fires and things like that. Aaron (01:01) Hip hip hooray. Sounds like everybody wants to be in support of the fair plan and that the wildfires have really helped them, right, Doug? Brian Bollinger (01:09) Not so much. they've they're really aggressively trying to to allegedly reduce the written premium and the insured values that they have. historically the last few years it's been one direction, right? rates have gone one direction. Now we're at a point where I think hopefully the rates are gonna kind of stable up here. Is that high enough in the frame? it's like super high to the point where the private insurance companies might be able to compete and give you better coverage, better service. Brian Bollinger (01:39) I don't want to hate on this fair plan too much, but they are not the best in terms of managing clinks. Aaron (01:46) One hundred percent. And for people who see the fair plan price and they look at their current insurance or their prior insurance and they say, Hold on, this is a deal, right? I'm I'm getting the same coverage A amount and you know it's half off. The reason it's half off is because it probably provides half or one fourth of the coverage. Aaron (02:03) It literally just covers your property for that fire exposure, the vandalism exposure, and a couple other optional exposures that you can add on. And so it doesn't cover those water-related claims. It doesn't cover the liability side either. And again, this company, this risk pool is suspect when it comes to paying out claims. Generally speaking, of course, all insurance companies, nobody wants to be paying claims and they're going to be reluctant to do so. But just generally speaking, from our our plethora of exper experience with them. Aaron (02:31) across all of our insureds. We we have had to advocate numerous times and get those claim settlements paid out, right, Dad. I mean, I remember I remember one where there was a roof problem and they were saying that Brian Bollinger (02:41) Yeah, we had a Brian Bollinger (02:41) tree, a tree fall off in a windstorm and line in a guy's garage and shattered the entruss, the trusses inside the place. I mean, from the outside it looked like it was just a little tiny, like maybe like six-inch divot. Looked like it was just super easy fix. but when you actually lifted up the garage door and you looked inside, the trusses were literally just shattered from that, from the impact of that huge tree. And they tried to argue, their arborists said it was fine, that the tree was okay and healthy. Brian Bollinger (03:08) But then when their denial letter for the claim, they said the tree must have been diseased and that's why it fell over. we also got into an articulation thing about how much wind is wind. so one of the challenges with localized weather in mountain areas, especially, is you know, you have wind funnels, places where the wind speeds up, slows down, you get gusts, right? and the sensors aren't everywhere. But any rate, they they ended up paying the claim, the client's happy. but it was a lot more work than it should have been. And we had a claim. Brian Bollinger (03:38) Even before that, maybe five years ago. So this is even before they were as big as they are now. Brian Bollinger (03:44) where a client wasn't really satisfied with how they repaired the kitchen. They had some kind of a claim. I think it might have been a water leak back in the day, maybe they covered them or fire. I forget the details of it to be honest. It's been so long. but what ended up happening was is they replaced part of the kitchen cabinets, but they wouldn't replace all of them as like a match set. So things like that we don't think about like, you know, the insurance companies are always looking for ways to kind of patch things to make them good enough. when it's your home, it's your kitchen, it's your house, you know, you want things to be really good. Brian Bollinger (04:14) like they were before it was you know, the loss happened. Brian Bollinger (04:17) We also see that to be honest, a lot of the replacement cost values that are being used it statewide for a lot of coverages, the cost to construct might be at, you know, four or five hundred dollars a square foot for a moderate home. Maybe they're being insured at 250, right? And they might have a little extended replacement cost on there, might be a little bit of fudge on there. But what happens after a big wildfire sweeps through an area, which is where a lot of these fair plans are, the contractor pool is only so big. People can drive in from Fresno to help prepare Altadena and the Palisades. Brian Bollinger (04:46) But that adds to the cost, right? The commuting time, the the cost to drive, having people living in LA versus living in Central California. These are things people don't think about when they're thinking about their insurance. That extended replacement cost coverage you're getting on your policy, that's for that kind of an extra. Brian Bollinger (05:02) ideally, not just because you're under insuring. Now again, everybody's situation is different. even some people now are understanding that you can build in a different location than where your house was at. There's some reforms at the California state level. I haven't heard how the California Fair Plan you know manages that or how effective they are at it you know cooperating with people. But other insurance companies we've had in the past have done a better job, I feel like, of helping the clients feel like they're being taken care of. I know Travelers had a claim recently with Brian Bollinger (05:32) one of our larger c clients had an e-bike fire. I feel like they did a really good job. There were some little things, you know, the guy bought a high-end sofa because he lost a high-end sofa from the smoke damage that happened when the house got, you know, caught fire, obviously. And so there were some little issues there. I think those got mostly resolved and people are fairly okay with that. Again, insurance after a claim, you're never going to be happy. I mean people that, you know, have triple A and they had an independent claims adjuster and they said, hey, that person took a weight of Brian Bollinger (06:02) weight off my shoulders when, you know, the the they were going after the insurance company, helping me get my house back together so I can move back in. you know, again, a lot of times husbands and wives start bickering, you know, what should we do? What should we do? it's good sometimes to have that third party come in and try to help, you know, navigate that. The downside is they take cut of your settlement. So it's not free, but for this couple they were able to, you know, do it. Aaron (06:27) Wow. For those of you listening, Dad took a deep breath. That was a long one. That was that was that's a lot to unpack, obviously. what type of coffee did you have this morning? Was it like spiked or something? Brian Bollinger (06:45) I think I had organic Costco coffee, might have been the Guatemalan one. I actually liked it. We got one of those fancy coffee makers at home and push a button and just keep pushing and they keep, you know, grinding and brewing more coffee. So might have hit it a little too hard today. Aaron (06:58) Goodness gracious. Wow. Well, we we were talking about deals. I wanted to, you know, give out give out a shout out to our you know, my coffee of the day, Alfred Coffee, Westwood, Peep. It's three dollars today. They they had a deal. And so there were like I'd probably say maybe a hundred Aaron (07:18) Cups just like pending. They said that they were like 20, 30 minutes behind. That there was a dude ahead of us who was ordering and we obviously had a mobile order and he he got told it was a 45 minute wait. And like that element of like kind of social proof, I guess a little bit of like, it's in demand, like it it makes people stay. And what we're seeing is that instead of people lining up for good coffee, this is good coffee. Aaron (07:42) People are lining up for the fair plan. And it's because there's nothing better. It's like the only coffee shop in California, pretty much. And people are just waiting there to get some, you know, just some nasty stuff. And it shouldn't be that way. And so one thing is that when you're looking at these captive insurance companies, you're going onto these online quilt portals, they've got limited access. They they're only looking at Aaron (08:06) The markets that have the immediate quotes to give you. And so most of those are admitted. It might have some excess companies, but doesn't include all of them. And truth be told, I mean, we have excess insurance companies that a lot of people don't. And we have the market access here at Bullinsure to look at. Okay, there's Markell. Okay, there's Evanston. Okay, there's Verdant. Okay, there's there's X, Y, and Z company. That there's more than just farmers, there's more than just State Farm. Aaron (08:35) And so if you're hit with a non-renewal and your broker is telling you immediately, hey, let's go with the fair plan. It's it's the best thing. I'd question your broker and say, Hey, what what other markets were looked at? Because it takes it doesn't take too long to get an accord app going or or get one of those applications going and ask a few questions to to you and you answer them back, obviously, and and start looking at the alternative options. Cause we don't want you having to wait in line for for what looks to be a deal and it ends up being horrible. And Aaron (09:03) Not that it's it's better than the alternative of no coverage, just that in general it's not it's not the go to recommendation and it's better than nothing. And you know, obviously we we don't write fair plan policy wit without a DIC. And that's that's one thing as well that we really need to emphasize is you gotta partner it with that liability coverage 'cause that's that's the half. I mean, you you can't have coffee for me without the creamer. It's it's the same thing there. Brian Bollinger (09:25) Yeah, and there's there's standalone Brian Bollinger (09:27) policies you can get to again for just liability only. But again, the the challenge of it is is the product's not the same, right? I think the issue we're having is that people tend to think that it's the same as what they had. They just look at the price. And the problem with insurance is it's not the price, it's the coverage. it's the coverage and the price, really it's a value. Brian Bollinger (09:46) And we're seeing now too, it's like older homes for a long time, they were like the only insurer that was out there for some older homes with minimal updates. We're beginning to see a little movement in that. We're beginning to see some companies start to put their toe in the water and say, hey, you know, we'll compete with the state fund. Sorry, sorry, not state fund, that's a different thing. Got confused there. They've gotten better too over time. They they've gone through cycles too. But go ahead. Aaron (10:07) Fair fair plan. State State Fund's different one. State funds another state program. They have Aaron (10:15) and we we have some good friends there, obviously. We've met some people there. And they, you know, they're they're a good company. They're doing their best. Just like these other state programs, just like the fair plan. I mean, you just gotta trust that people are doing their best. And that's that's honestly probably the case. one thing is is that ABC News just posted that the rates are going up effective mid October for the fair plan policies up. I think it was twenty nine percent or so. Aaron (10:36) That's, I mean, all signs are indicating that the California government and insurance commissioner and everybody's working together and saying, listen, we got to get people off this fair plan risk. This isn't sustainable. And there is profit to be made on the California property insurance market. There is. It's not that they have made it in the past because almost all of these companies have lost money to these wildfires and other claims. But I mean, I I'm a firm believer that there that there is a case to be made that there is profit. Aaron (11:04) To be made in the California property insurance market, right, Brian? Brian Bollinger (11:07) Yeah, and we've actually seen one company recently you know come out with a twenty percent rate decrease. Brian Bollinger (11:14) We're seeing a lot of the preferred markets and some of the, you know, excess surplus or specialty markets begin to broaden their appetite, either by age of construction, how close to brush they're willing to get. a lot of companies are still playing it super conservative. I mean, again, I think we mentioned before, the best place to be is in the middle of a city far away from brush. the reality is, people listening to this, there'll be some people like that. There's mercury out there, they're very aggressive on pricing with new construction, like new homes that could be half off, you know, for the first few years. Brian Bollinger (11:43) I mean, it's it's incredible the discounts you can get with some of the new construction deals out there. but when you get into like older homes, you start getting to that 30 to 50 range, the the amount of companies out there that'll do it without having, you know, proof of updates starts to shrink. And as it shrinks, it means your your rates are gonna start kind of going up a little bit. And our our goal is to fit, you know, we have so many companies, right? We're trying to fit where you're at. Brian Bollinger (12:08) with the companies we have that'll insure you and then trying to get you the one that gives you the best value. and again that's that's the that's the trick, right? And the issue with it is it does take a lot of time, it takes a lot of effort. and some of these programs not everybody has access to. Again, we've been bringing on a lot more companies recently as we start to expand to say, hey, let's take advantage and try to help more people of of this softening market of these rates that maybe they're not going down yet, but they're Brian Bollinger (12:35) again they're we're seeing the beginning movement of that softening and and I think it's it's good. I think we're seeing it across the board statewide and again I think that's gonna be good for consumers in the long run. I think the issue we had was rates were so low for so long, insurance companies lost a lot of money, companies left the state 'cause they were losing money. Eventually now I think the rates have obviously gone up a lot for a lot of people. I mean, I was looking at some statistics they said they're up like fifty percent or something, some ridiculous number. Brian Bollinger (13:05) And what we're actually seeing on a client by client basis, some of our clients have seen their rates go up, you know, 300, 500. I mean, we've even heard anecdotally of some of the clients, you know, that come to us, you know, a thousand percent, right? So 10 times what they were paying before. They might have been paying four grand before, now it's 40 grand, like that kind of a differential. It's really hard to wrap your mind around that. I think that 40 is obviously too high, and we're starting to see those start to drop back down for some of those people. So that's another thing we're trying to do is help people. Brian Bollinger (13:35) people kind of pull that that that pricing down when we can. Aaron (13:39) If we can, obviously, and that that comes from the market access of an independent insurance broker. The market access and the advantage of an independent insurance broker is that they they're not limited to just one selection. They they can say, Hey, this company we work with has really good claims handling. They tend to have good pricing, consistent renewal to renewal, because that's another thing that people don't think about. These fair plan rates, I mean, first year they can be this, next year they can be whatever, because I mean they they're able to raise it by twenty-nine point one percent now. That's that's just the truth. And it it really comes down to the experience of your grocery. Aaron (14:09) broker with these companies and going with a good recommendation. If you have a financial advisor and they're telling you to go, you know, this is the best, cheapest, immediate thing, then that's that's obviously not something that that you'd probably do in the best case world is go with the cheapest thing first year just because it's this shiny new object and it's the lowest price. It's about consistency. It's about, you know, year to year, what would be the best solution for you and your family? Aaron (14:35) And that obviously differs from family to family. And so that that also comes back to the different insurance company access. It comes back to like you were saying, these newer homes. If you have a newer home and you're not near a brush, nobody should be placing you with a fair plan unless there's something horribly wrong with with your property. Brian Bollinger (14:51) Bad claim history Brian Bollinger (14:52) that eight water leaks, the roof's been blown off twice, and you know, it's leaning forward just to the left. But it sh that shouldn't be your house. Your your house should be a lot better than. Aaron (15:00) It exactly. And you you deserve better than than these companies in in complete honesty, like in terms of just like the the restriction that they have. And so I mean, if you're with a fair plan company right now, upon renewal, go reach out to your broker and say, Hey, have we shot this? Because I mean Aaron (15:17) The job of your insurance broker is to advise you financially on what is the best thing to protect your assets. Otherwise, it's just money down the drain. If you're not getting the best value, it's literally just money down the drain. If you have an auto insurance policy that would cost, you know, an extra $500 to increase from the minimum limits in California, $15,000, to $250,000. If you were to get an accident or into an accident in the next 20 years, even if you think you're the world's best driver, if hit and run were to happen anything. Aaron (15:46) You'd you'd be covered because you made that really small decision. It's even more evident on the property insurance side. Making the decision to look at alternative options is what we've seen reap the most benefits for people. Because the second that you reach out, the second that you answer that phone call, the second that you re again you talk to another insurance broker and you get a market risk assessment, the second that you talk to your financial advisor and see if they partner with any independent insurance brokers. Aaron (16:12) Th these different things that that these strategic decisions that you're making will be reaped tenfold in terms of not only like maybe how much you're paying long term or how much you have to pay out of pocket in the event of a claim, but also your comfortability. You had talked about those people who had that kitchen remodel done. Half of it's done. You don't want this stuff to be like like half, like half full. You you want the full glass. You if you're paying for for the package, you've got to get the package. Aaron (16:40) And that's that's that's the answer. I mean, having somebody that you know like and trust is preferred, but what's most important is having an insurance company that will actually insure you. And so it it causes us to question when when people that we see are with a fair plan and you know, or or they're with some, you know, just standalone policy in the middle of nowhere with no level of of flexibility, it it gets hard as as an insurance broker to Aaron (17:05) to understand where that other broker's coming from and then why that person has been settling for less. And we we always try and advocate for for getting the best coverage. Brian Bollinger (17:15) And it's it's hard, right? A lot of people are grandfathered in. They're they've got these rates and they're looking at them. You know, you pay seven hundred bucks a year and now it's seventeen hundred dollars a year. You know, honestly the market might be at three or four thousand in premium. So some people, you know, are still grandfathered in some amazing rates. They're getting great value for their dollar. and the flip side is some people aren't. And that's I think we're trying to say is everybody's situation is unique. You need to really take heed of of where your property's at. Brian Bollinger (17:42) You know, if you have, you know, limbs of trees overhanging your house, obviously cut those back. You know, try do what you can to mitigate your risk. I mean, that's be proactive. Nobody wants to lose their house. I mean, their home, right? I mean, forget about the insurance that you have that in case it happens, but you need to take steps to prevent that from happening the first place. Aaron (18:00) 100%. We we had a guy who, I mean, it was a property non-renewal and it was horribly placed house in terms of the posit the position to brush. And he had, like you said, overhanging trees. He had some branches that were over. You want to he did he he got the notice from the insurance company and we talked him through what the expectations were. And he just did it himself like the same day. Not that that's the expectation, but however quick you can turn this around and just make it into something that's safer and the insurance companies will want to ensure. Aaron (18:29) That's that's the goal here. I mean, you you don't wanna again, you don't wanna have that have that glass half full. I mean, you you wanna get the whole thing that you're paying for. And that's that's again what we're advocating for. But how how do we get here, Brian? How do we get to the point where we're having a conversation about how the state is insuring 700 and however many billion dollars of properties with the level of claims handling, with the the market and how much reinsurance is going into California? How how why is this where we're at? Brian Bollinger (18:59) I think we're there right now because of the decisions we've made over the years in terms of not having the rates go up over time. And I think now we're again, I still feel like a lot of people in California are being overcharged right now. And it is hard to, you know, try to navigate that. And that's one of our passion things that we're trying to do is help people get that better value when we can. But you know, it's not that the fair plan's bad. again, I don't mean to spash them too much. It's just that they're not good. They're not perfect. Brian Bollinger (19:29) Perfect. They're supposed to be the insurer of last resort. They were supposed to take the bottom 5% or the highest risk, you know, a couple percent of the marketplace, and they were supposed to insure that. They weren't supposed to be double digits of the insurance market. They weren't supposed to be growing at the rate that they they grew at. Brian Bollinger (19:47) You know, they've added a ton of staff, they've added a ton of resource, right? A ton of claims adjusters, because the fires do tend to impact them more than most other companies. a ton of things, right? I mean, it's not just one thing that they've had to do. And so they've they've had a big challenge in front of them. you know, it's weird to think of them as like an insurance company and their their management and the state is trying to, you know, shrink them. But physically, that's what they're trying to do. These rate increases, I think, are meant to be punitive and they're meant to push people out of their Brian Bollinger (20:18) of their program and get them back into the into the independent marketplace or the standalone marketplace, non non-state regulated or even state regulated in terms of admitted carriers, but like get them out of that risk pool and get them back into the actual insurance marketplace in California. Aaron (20:36) I I a hundred percent agree. I I believe it's a it's a system error. It's kind of like the the market crash and the housing market. And I mean, there's just a bunch of different economic trends that you can cite and and have it be, you know, similar to. And it's the fact that the prices over the year to year have been so low and such good value, and and now it's it's bound to pop because these companies haven't been profitable. And one one last bit in food for thought is Palisades homes. So a lot of the Palisades homes were with companies like the Fair Plan and similar X. Aaron (21:06) Lines and obviously because some of them were near brush, hence, hence what obviously happened. It was, of course, very tragic. Seven out of ten of them were underinsured, those homes that were burned. 70% of them. This is this is a serious thing. You can imagine how much they are paying for insurance. You can imagine those, you know, five figure premiums that they are paying on that property side for proper insurance, what they thought was. And that's why it's so important is that even if you're not in that level of home or that that quality, Aaron (21:36) it's still it's still Brian Bollinger (21:37) It's just Aaron (21:37) important to know. It's still important to have your eye out on because it it can be your condo. It doesn't matter. Proper interest you're paying for it already. You might as well just have it be properly set up. That's that's what we're just trying to say. Brian Bollinger (21:51) Yeah, and the increased cost of the cost of construction, I mean, being underinsured, I I bet it's even higher than that. I mean, most people, I think, honestly, are probably underinsured. I think it's an unfortunate reality. Again, the cost of you know, rebuild and the palisades has not gone down over time, right? I mean, let's be clear. I mean, we've seen numbers now that some of these houses, you know, what is it, four fifty, I think, is a number that's going around right now as kind of a a blue collar neighborhood, you know, maybe a white-collar neighborhood. Some of these crazy homes in the palisades are going. Brian Bollinger (22:21) For like $1,200, $1,400, $1,500 a square foot. You know, I mean, they're beautiful monstrosities, don't get me wrong. People can spend whatever they want. But that's the other thing to kind of keep in mind is the policies were designed to help you rebuild your home, right? And they're trying to capture the essence of what your home was. I don't know that they're necessarily designed to get you the creme de la creme of, you know, builders and architects and these kinds of things. Brian Bollinger (22:51) I think it's kind of set the standard, even if we say above average, it's kinda set for just standard stuff. and for some people that's fine, but for many people they want they want more. They want iron finishes, they want Brian Bollinger (23:03) more expensive flooring. They they want it the way they want it. And, you know, when you are rebuilding your home, I've had a couple people, you know, rebuild stuff over the years. And a lot of times they're adding square footage. You know, maybe they enter your courtyard, they decided to enclose it. They get more square footage. They they they obviously move bathrooms, move walls, you know, again, it's a blank slate at some point, right? So you want to get that home exactly the way you want it. so again, I do feel like a lot of these people are coming out better off in terms of the the s the the quality of the building and home that they have. Brian Bollinger (23:34) post post loss, which is a whole nother kind of dilemma. I mean, is that the intention of the insurance policy? Some of these companies out there now are doing what they call functional replacement cost. Basically, does it function the same? Not as it not is it as good or as high end or or whatever as you'd like it to be, but is it good enough? Is it, you know, functioning the same? Brian Bollinger (23:54) So there's all these terms in these policies to dig into. A lot of things you need to educate yourself about. Definitely need to look in your policies, fine print, make sure it does what you think it needs to do, and make sure that you're ensuring your future success, you know, in case something goes sideways. Aaron (24:08) And a lot of that is your broker's job and it's something that you need to coordinate with them. And if you don't feel properly supported, we have a hotline. We gotta, you know, give us a call, you know, we gotta email, you can shoot us an email, you can drop a comment. yeah, well, Dad, this was awesome. In the beginning there was a three minute monologue that I think was Shakespearean. Brian Bollinger (24:27) I got a stand up routine for next time, so don't worry, we'll we'll do something more exciting. Aaron (24:31) goodness. Hopefully you don't have too much coffee in the morning, on that next one, huh? Brian Bollinger (24:35) I'll work on my dad jokes. How about that? Aaron (24:38) goodness. Sorry guys. Brian Bollinger (24:41) Thank you so much for your time. Hope you learned something. Aaron (24:42) Thanks, Aaron (24:43) thanks. Thanks, Pop. Pick up all tomorrow? Brian Bollinger (24:45) Definitely pick a ball. Let's do Aaron (24:47) Let's do it. We gotta start posting videos of pickleball. Brian Bollinger (24:50) not a pickleball, that's embarrassing. Aaron (24:52) Right. Brian Bollinger (24:53) Talk to you later. Okay, bye bye. Aaron (24:57) Until next time.