In The News – The surprising way California’s home insurance crisis is affecting Tahoe

By Michael Cabanatuan, Reporter San Francisco Chronicle, June 16, 2024 – Submitted by IVCBA Member – Photo Credit SF Chronicle

Not long ago, homeowners on the California and Nevada sides of Lake Tahoe faced vastly different

realities when it came to buying insurance on their Sierra Nevada homes.

In California, prices soared even as insurers pulled back, refusing to write new policies or renew existing policies for many customers. Right across the state line in Nevada, homeowners enjoyed lower rates in a more competitive market.

But those days are gone, say Nevada’s division of insurance, insurance brokers and real estate agents.

In woodsy shoreline communities like Incline Village and Stateline on the Nevada side of scenic Lake Tahoe, increasing numbers of homeowners are facing insurance nonrenewals and soaring premiums — and few if any insurers willing to write new policies.

“It has definitely crossed the state line,” said Denise Bremer, head of the Incline Village Association of Realtors, which is seeing the crisis spread and affect home sales. “I sell on both sides and it started in California a few years ago, but in the past year we’ve seen it creep over to the Nevada side. It’s become a lot more common for single-family homeowners to get nonrenewals.”

Todd Rich, chief deputy commissioner of the Nevada Division of Insurance, said the state is “seeing an uptick in carriers non-renewing homeowners’ insurance, mostly due to wildfire risk in Northern Nevada.”

Nonrenewals and unaffordable price hikes on either side of the state line leave homeowners and potential buyers in a quandary. Without insurance, they’re unable to get or keep home loans, and could potentially default on their mortgages or have to give up on buying a home.

Californians are left with three choices — get costly coverage from an unregulated insurer; sign up for the pricey FAIR Plan, the “insurer of last resort” in the state for wildfire risk; or “go bare,” forgoing insurance and taking their chances, said Steve Young, senior vice president and general counsel for the Independent Insurance Agents and Brokers of California.

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.”

Ricardo Lara, California’s insurance commissioner, recently said that the insurance crisis is having a “devastating” impact on the real estate market in the state.
While the surge of nonrenewals is hitting owners of single-family residences hard, the impact is even worse on homeowners associations for condominiums and townhouses on the Nevada side of Tahoe, Bremer and Plastiras said. Some are finding it nearly impossible to find new policies, and others have had to double or triple their monthly HOA fees to cover the costs.

While the home insurance crisis is hitting the Lake Tahoe area — long deemed an area at risk of wildfire — particularly hard now, it’s starting to spread through Nevada, she said.

“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.”

Reach Michael Cabanatuan: mcabanatuan@sfchronicle.com;