Should you Purchase a FAIR/DIC Policy or a Non-Admitted HO3

Wow, what a year it has been. With the craziness of the pandemic, a lot of us are not even aware that a crazy insurance situation is unfolding in the golden state of California. Numerous articles in the Sac Bee and the Insurance Journal have pointed out, that the search for home insurance has"turned into a labyrinthine quest that leaves people with expensive, bare-bones coverage." And "the problem is getting worse."

What has happened is simple: Wildfires. More and more of them, we all know this. However what many do not know is that wildfires have forced insurers to pay out more and more in claims. In fact many home insurers in this state are now paying out more in claims than they are receiving in premiums. And that is a big problem.

One of the solutions that various insurers have come up with are to non renew their home insurance policies at the renewal period. A legal notice is required to be sent out to the insured when this is done. [Please note that there are numerous California regulationts regarding this, including one in the past year or so that dissallowed this practice in certain wildfire affected zip codes.]

These consumers who are now forced into the open market have few, if any good options.

The first obvious step is to call out to the available captive agent insurance companies, such as State Farm, that are still taking some owner occupied dwellings to potentially procure coverage. In addition to check a few of the independent insurers as well. Quickly though many of these consumers will not find much success.

Once a consumer gets to this point, there is a fork in the road, and neither of the roads are great. There are essentially two main options of potential coverage:

Road or Option A: Is the state insurer of last resort - the California FAIR plan, combined with Companion Insurance policy otherwise known as a DIC policy. This combination of policies [FAIR/DIC] is convoluted, complex, and coubl easily be described as fuzzy at best. This option is sometimes the best from a premium perspective but caps total insurance coverage [TIV in insurance language] at just $3MM. When adding up all the neeeded insurance that is not quite enough for numerous properties in Marin and Sonoma County.]

Special care should be taken when selecting the companion DIC insurance provider as not all DIC policies are created equal, especially those that near the top end of the $3.0MM in TIV coverage spectrum.

Road or Option B: Is a non-admitted homeowners [or dwelling] policies from the likes of Scottsdale, Lloyds of London, HDI, etc, etc. This single policy is probably simpler to understand and will look more familiar to consumers. But the complexities of these policies often show up in the policy wording, exclusions, coverage forms, payment methods, and other special requirements. These non-admitted policies are NOT backed up by the state guarantee fund and are not regulated by the California DOI. One of the core issues with non admitted homeowner policies is one of capacity and price.

The major concern with purchasing one of these contracts in partnering with a broker that has a level of experience with them. Significant differences exist between the various options.

So - how does a consumer in Marin choose between a non admitted homeowners policy through Lloyds of London and one from a FAIR/DIC vendor? Frankly I'd suggest you ask your agent. And if your agent cant provide competent answers - I might consider asking your friends for their insurance agent's name. Your agent, [he or she] should be able to walk you through the two major choices themselves. One suggested question to ask your agent: Where are you seeing opportunity for more coverage and or lower premiums?

With the advice and counsel of your agent, you may agree to focus more on saving premium dollars or you may focus on increased coverages. Hopefully the proper choices will be available.

Scott W Johnson is the manager, founder, and owner of Marindependent Insurance Services LLC, a boutique Marin based insurance brokerage/agency. California License 0H11625.