State Farm leaves hundreds of California HOAs scrambling for Earthquake Insurance Coverage


It looks like the party’s over folks. As you know, for the past few years I have been advising associations sitting on State Farm earthquake policies issued prior to 1994 to stay put due to the fact that State Farm’s quake pricing was well below the norm. Frankly, I am surprised it took so long for State Farm to come to their senses. The fact is that State Farm was holding a very large pool of high risk properties and practically giving away policies at pricing that did not make a lick of sense from an underwriting point of view. They tried to minimize their dicey catastrophe exposure somewhat by offering obscenely high deductibles.

Who’s getting the axe?

State Farm began trimming its earthquake exposure by cutting those properties deemed the highest risk first. It began in early 2010. We started fielding calls from pre-World War II HOAs in the Bay area with buildings that did not have the necessary upgrades and/or retrofitting; not even Lloyds of London would take them. Next to go were the large buildings with higher values which never should have been written with State Farm in the first place. The latest round of cuts includes all commercial buildings that have first floor parking. The irony here is that these properties are very easy to place and the rationale for canceling these risks do not follow the logic of those with sophisticated modeling programs and specialized underwriting. Again, this proves what I have said all along. A company like State Farm that does not specialize in catastrophe insurance has no business insuring risks they do not fully understand.

What’s next for those associations getting dumped?

If you are one of the scores of associations hit by an earthquake endorsement cancellation notice you are probably in panic mode about now. True, the timing couldn’t be worse due to the current economic situation and fact that your cash strapped HOA can hardly afford to pay more for insurance this year. However, let me assure you that things are not as dark as they seem.

Here’s the good news:

1. Earthquake rates are the lowest they have been since hurricane Katrina and some new players have entered the fray which means more options and lower pricing for you.

2. Most of the current State Farm cancellations are able to be written with other insurance companies with no difficulty. In fact, in the current marketplace if your building was built after 1976 it can be rewritten with a lower deductible and comparable premiums.

3. The very fact that you have an earthquake endorsement predating 1994 means that you have not shopped your fire policy in more than 15 years. There are many carriers out in the marketplace today that offer significantly better coverage than State Farm at rates that are sometimes less.

4. Since State Farm policies automatically include unit interior coverage whether or not your CC&Rs dictate coverage you may have been overpaying for something you don’t need all along.

5. Now is the perfect opportunity for you to have a knowledgeable independent broker complete a thorough insurance evaluation to check for accurate property valuations, coverage gaps etc.

We are here to help!

Unlike your State Farm Agent, we are independent brokers specializing in earthquake coverage. Elliot Katzovitz Insurance Agency has access to all of the markets that are currently available for earthquake insurance. For larger and more complicated buildings we know how to use multiple companies to create the best value for your insurance dollars. Our creative solutions and structuring offer options that most other agents either don’t understand or don’t know exist. This is why we have been focused on writing these types of policies for the past eleven years.

We know that making a move to a new agent can be an overwhelming experience. Our promise to you is that we will make the transition from State Farm to another carrier as simple as it can be. All it takes is a five minute conversation and a couple of documents sent to us. In few days we will have proposals for you. If you would like us to attend a board meeting we are happy to do it. Don’t worry; we will walk you through the process of binding new coverage and help inform your owners of the change.

To start the process just call us at 310-945-3000 or click on the quote form below and we will contact you within 1 business day.


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