The following is an interview I had with an experienced luxury home insurance agent:
What are the general market condition for homeowner’s insurance, especially for luxury homes? Generally speaking, the larger the home the higher the replacement cost, which narrows the availability of carriers in the first place. Luxury homes should be insured by carriers whose policies are designed for these types of homes. These carriers include Chubb, AIG, PURE and Nationwide Private Client Group. Their underwriting willingness is always evolving, so don’t wait until the last minute to secure coverage.
What is evolving? Many carriers are concerned with brush hazard and will not write insurance on homes in a high brush area.
What if I get a quote for insurance for someone who wants to buy my $10 – $15M home and it is for $100,000 to $150,000 per year? For starters, I would remind the buyers that insurance should not be a deciding factor when it comes to purchasing their dream home. As the old saying goes: location, location, location. Ultimately, many people want to be part of the Montecito lifestyle. With insurance, you should work with a broker who can shop your insurance for you. Maybe the seller and buyer can work together on the common goal of completing the sales transaction and negotiate some type of credit, if allowed.
Are companies likely to go out of business in places like Montecito? Not likely, but yes, bankruptcy can happen, which is the reason one should check their insurer’s financial rating. There are several firms that rate insurance companies; the one most people are familiar with is A.M. Best. However, if an insurance carrier experiences losses that are too high and too consistent, they can decide to leave a state.
Will that affect getting insurance? Since not all carriers have strong enough financial stability to withstand widespread catastrophic losses, there are now fewer options for customers. When it comes to luxury properties, it may take longer to secure coverage. We are experiencing a minimum of 12 days from application to secure coverage.
When is it likely that insurance prices will take a big jump in Montecito? We are already seeing premium increases as well as non-renewals. Scrutiny of renewals as well as a tightening of under writing on new business, is, and will most likely continue to occur for the near future. The claims payouts and the data are definitely there to support the need for higher premiums.
What is your pro-active advice for owners who want to be prepared for the coming changes in the insurance market for luxury homes? Talk to their agent, to see if their home policy may be in jeopardy of non-renewal or if a rate increase can be expected. They can also find out if there are any additional discounts they may qualify for, such as installing a monitored home alarm or fire suppression system. We suggest checking with the agent 75 days before renewal.
Montecito Market Report
Interested in more insurance options? Contact me and I will put you in touch with this agent.
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