The state’s fire insurance crisis means Skyline Forest homeowners face steep rate increases.

Sticker shock is how best to describe what the residents of the Mountain Shadows Townhomes in Monterey felt last month during a scramble to find property insurance, after Farmers Insurance declined to renew their policy. Previously the homeowners association paid $22,000 a year for fire insurance. Now they pay $250,000 a year. Their deductible went from $2,500 to $100,000. On Jan. 29, they had to put down $100,000 cash in order for a new insurance package to kick in at midnight on Feb. 1.

Because of the jaw-dropping increase, HOA fees jumped from about $500 a month to $1,436. “All my life, I’ve been waiting to live here and now I don’t know if I can afford to stay here,” says Pat DeMasters, secretary of the HOA board. She did much of the legwork on finding new insurance. “We called over 40 insurance companies. It’s like drinking from a fire hose,” she says.

The reason for the increase: Mountain Shadows is located in Skyline Forest, classified as an area at the highest risk on the state’s Fire Hazard Security Zones map. Like many other insurance companies, Farmers has pulled out of writing policies in California, and is reluctant to renew homeowners – the Mountain Shadows HOA filed two claims for damages caused by falling trees in the 2023 winter storms, reason enough to decline renewal.

The HOA turned to insurance broker Eileen Topete, CEO of Wright & Kimbrough, who helped the Mountain Shadows board find coverage through a layer of five companies – four covering fire insurance and one for liability. The fire insurance alone is $250,000. Liability costs over $5,000.

Topete also advised the board to apply for coverage through the California FAIR Plan, a syndicated fire insurance pool composed of all insurers licensed to write property policies in the state, in case they can find a less expensive alternative. The FAIR Plan was created by the state Legislature in 1968 as a temporary solution for owners having trouble finding insurance.

“We are in an insurance crisis in the State of California,” Topete says. It’s the worst she’s seen in her 40-year career. “Over the last 24 months, carriers have either completely ceased writing policies, or put a pause on writing anything new.” The FAIR plan is reportedly receiving over 1,000 applications a day. Mountain Shadows is still waiting to hear quotes from the agency.

Topete says that for every dollar insurance companies take in, they pay out almost $1.90 in claims. Some of the biggest wildfires in the state’s history, fueled by climate change, have cost insurers a combined $13 billion.

“Insurance carriers are saying, ‘Forget trying to break even or make a profit. Until something changes we’re choosing not to write [policies] in California anymore,’” Topete says.

Last September, Gov. Gavin Newsom issued an executive order for “prompt regulatory action,” and the California Department of Insurance is said to be working on solutions. In the meantime, Topete advises homeowners who are renewed to pay the higher premium because it will be cheaper than finding something new.

By law, companies must give policyholders 75-days notice on non-renewal. If they’re not renewed, policyholders should immediately ask their agents to apply for insurance with the FAIR plan. Time is of the essence – it could take up to two months to get quotes from the agency.