How California’s Home Insurance Crisis Is Unexpectedly Impacting Tahoe

Previously, homeowners on the California and Nevada sides of Lake Tahoe had very different insurance options for their houses in the Sierra Nevada.

In California, costs increased despite insurers declining to issue new or renew plans for many customers. Right across the state line in Nevada, homeowners benefited from lower rates in a more competitive market.

However, those days are over, according to the Nevada Division of Insurance, Insurance Brokers, and Real Estate Agents.

In woodsy seaside communities like Incline Village and Stateline on the Nevada side of picturesque Lake Tahoe, increasing numbers of homeowners face insurance nonrenewals and escalating premiums—with few if any insurers prepared to write new policies.

“It has definitely crossed the state line,” said Denise Bremer, president of the Incline Village Association of Realtors, which is witnessing the crisis grow and impacting house sales. “I sell on both sides, and it began in California a few years ago, but it has recently spread to Nevada. Single-family homeowners are increasingly experiencing nonrenewals.

Todd Rich, chief deputy commissioner of the Nevada Division of Insurance, told sfchronicle that the state is “seeing an increase in carriers not renewing homeowners’ insurance, primarily due to wildfire risk in Northern Nevada.”

Nonrenewals and exorbitant price increases on both sides of the state boundary leave homeowners and potential buyers perplexed. Without insurance, they are unable to get or maintain home loans, and they risk defaulting on their mortgages or giving up on home ownership.

According to Steve Young, senior vice president and general counsel for the Independent Insurance Agents and Brokers of California, Californians have three options for wildfire insurance: purchase expensive coverage from unregulated insurers, enroll in the costly FAIR Plan, the state’s “insurer of last resort,” or “go bare” and take their chances.

FAIR Plan makes a difference

But Nevada consumers are missing one of those options. The state lacks a FAIR Plan, something offered not only by California but about 30 other states and the District of Columbia. (States, not the federal government, oversee property insurance, so regulations vary considerably from state to state.)

Scott Menath, president of the Nevada Independent Insurance Agents, runs Menath Insurance Agency, which sells insurance on both sides of the California-Nevada line. On the surface, he said, the situation in Nevada appears to be “slightly better,” with some insurers — like State Farm, which has announced nonrenewals of fire insurance coverage throughout California — still selling homeowners policies on the Nevada side of the lake.

But overall, he said, California is better off, because it has the FAIR Plan. The privately run, state-created program allows homeowners to get wildfire insurance even if they cannot find it elsewhere  — an increasingly common scenario in large swaths of wildfire-prone territory throughout the state.

“The lack of a FAIR Plan is a problem,” Menath said. “California from a consumer standpoint offers more options.”

Menath said he “absolutely” supports the creation of a FAIR Plan or perhaps a type of program in which Nevada consumers unable to get insurance are randomly assigned to different insurance companies.

California’s FAIR Plan offers limited coverage at higher costs and has been overwhelmed with new customers. Insurance industry experts fear it could be oversubscribed and unable to pay out claims in the event of a massive wildfire. In that case, insurance companies would have to cover the excess based on the share of policies they hold statewide.

“They fear there will be a catastrophic loss and there will be an assessment,” said Haley Andrews, vice president of Gaines Insurance Agency in El Dorado Hills near Sacramento, which sells policies to a lot of Tahoe Basin residents. “For a lot of companies that’s a big scary question mark. It’s why you’re seeing a lot of companies withdrawing” and not renewing policies, in an effort to reduce their risk in the event of one or more huge wildfires, she said.

As in California, Nevada homeowners who receive nonrenewal notices face often frustrating hunts to find affordable replacement coverage.

Chris Plastiras, an Incline Village resident and owner of Lakeshore Realty, recently received an insurance nonrenewal notice. He owns eight properties in the area — two commercial, four investment, his real estate office and his home — and initially feared the notice applied to all, but was momentarily relieved to find out he was losing coverage only at his home.

He found one other insurer willing to pick him up — for a 300% increase. He’s still looking.

Bremer said increases of 200% to 300% are common. Properties deemed to be at particularly high risk can go even higher, Menath said.

“Yes, you can probably find (replacement) insurance, but it’s going to cost you,” Plastiras said.

Some insurers are offering policies to new customers but putting caps on payouts or requiring unusually high deductibles on losses, he said. Others are saying they’ll cover only 50% of a customer’s loss.

“It’s causing some people to sell their properties” because they don’t want to take the risk or can’t afford the higher costs, he said.

Crisis affecting housing market

Plastiras, who has sold real estate in the area for 45 years, said the insurance crisis is already beginning to affect the housing market.

“We are seeing some values declining due to insurance risk, a decrease in the pricing structure,” he said. “We’re kind of in our infancy as far as where this lands.”

California’s insurance commissioner, Ricardo Lara, has stated that the insurance problem is “devastating” for the state’s real estate market.

While the increase in nonrenewals is causing problems for single-family home owners, it is even worse for homeowners associations for condominiums and townhouses on the Nevada side of Lake Tahoe, according to Bremer and Plastiras. Some are finding it difficult to locate new coverage, while others have forced to increase or quadruple their monthly HOA payments to cover the expenses.

The house insurance catastrophe is already affecting Lake Tahoe, a high-risk area for wildfires, but it is also spreading throughout Nevada, according to the speaker.

“I’m hearing from colleagues that it’s in Battle Mountain, it’s in Vegas, it’s in Elko,” she said. “It’s creeping down to the Washoe Valley now. It’s not just the border. It’s a statewide issue now.”

Rich, in the state insurance division, said Nevada regulators are aware of the issues and have been consulting with regulators in other Western states, fire professionals and state and federal legislators to try to come up with solutions. The division is examining the FAIR plans, which vary by state, in California, Oregon, Colorado and Washington.

‘Clearly a national issue’

“This is clearly a national issue, and now Nevada is feeling the impact; however, we are not in the same position as California,” where the crisis is deeper and more widespread, he said.

Mark Friedlander, a spokesperson for the Insurance Information Institute, a national trade organization, said the problem is surfacing in various regions of the country. He blamed five factors: people hiring attorneys who are quick to sue instead of settle; inflation in home reconstruction costs; an increasing number of people moving into areas susceptible to wildfires, hurricanes and tornadoes; a “challenging” regulatory environment in many states; and concerns about risk exposure.

“Some insurers have pulled back on certain markets to rebalance their risk exposure so they don’t carry too much risk in one area,” he said.

Some Nevada organizations hope their Legislature manages to deal with the situation before the end of the year. But the state’s lawmakers convene only every other year, and this is an off-year. Any action on insurance, including the state’s own FAIR plan, would require waiting — or a special session.

A town hall meeting with state and local officials and residents is scheduled for June 28 in Incline Village to discuss the home insurance issue, according to Nevada Assemblywoman Heidi Kasama, R-Las Vegas, who has held hearings on the topic.

“I am deeply concerned for the challenges our property owners are experiencing,” she wrote in an email to the Chronicle. “However, I would also be cautious about government intervention in the private marketplace.”

While Nevada struggles to handle the insurance crisis, which some hoped wouldn’t cross the California state line, industry professionals are cautioning others in the West.

“We’re trying to warn other states — Colorado, Utah, Arizona,” Bremer said. “Hey, it’s coming for you.”

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