Ripple Effects of Having an Uninsurable Home

Ripple Effects of Having an Uninsurable Home

With wildfires ripping across California, the importance of homeowners’ insurance is on the minds of many residents—at the very same time that insurers are looking at their bottom line and raising premiums or outright refusing to insure homes in high-risk areas.

Reports say that in the past four years, more than 340,000 California policyholders in fire-prone regions have seen their homeowners’ insurance canceled. 

Where does that leave the unlucky homeowner? Unfortunately, in a bit of a jam, given that:

  1. Property values will drop. Not only is living in a region known for wildfires unattractive to buyers, but neighboring homes could end up abandoned as others also face policy cancellations.
  2. Selling the home might actually be impossible: the new owners want to know the property will be protected from loss, and they might be unable to qualify for a mortgage without insurance.
  3. The existing homeowner might be unable to keep his or her a mortgage. Lenders will extend credit on homes only if there’s collateral, in the form of the possibility of foreclosing on and selling the property if the homeowner doesn’t pay on schedule. But if the collateral could go up in smoke with no chance of being repaired, so will your ability to hang onto the mortgage.

What’s a homeowner to do? Alternate insurance will likely be hard to find, given that all the companies will be looking at the same maps regarding which areas are fire-prone.

The solutions in this case, unfortunately, require high cash reserves. In California one can, for example, buy state-sponsored insurance from the FAIR program, but premiums are high. One could attempt to set aside enough money to rebuild after a fire or other disaster—but that’s already a proposition in the tens or more likely hundreds of thousands of dollars, and not one you’d want to face if fire comes around again. Perhaps it’s no wonder that some Californians are paying around $3,000 per day to hire private firefighters to battle the blazes nearing their homes.