Non-Admitted vs. Admitted Carriers: Saving Your Home Deal

Transcription

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Pete: So you can broker to multiple different companies.

Patrick: We have over 50 different companies we can work with.

Pete: 50 different insurance companies.

Patrick: Correct.

Pete: I do mortgages, and I've found that you guys can write a lot of policies that other insurance carriers cannot. Why is that?

Patrick: Goosehead Insurance is a franchise, right? We have agencies.

Pete: Okay.

Patrick: Across every state in the United States. Goosehead's model is they do all the hard work for me to get all those carriers. They get them appointed, and then they give us access to them. We have access to those carriers, whether it's a carrier predominantly on the East Coast or the West Coast, the Panama, or whatever it may be. And while they are called non-admitted carriers, they may not be licensed in California. That is what we only have left in California.

Pete: Patrick, thanks for coming in.

Patrick: You bet, Pete—any time.

Pete: Yeah. So you work for Goosehead Insurance.

Patrick: I do. Yeah. For the last five years.

Pete: Yeah. So I have Patrick Kono here, and you've been with Goosehead for five years.

Patrick: Yep.

Pete: And you've been an agent now for 12.

Patrick: Yeah.

Pete: Awesome.

Patrick: It's gone pretty fast.

Pete: And this is all with property insurance.

Pete: Yeah. Property and casualty.

Pete: Property and casualty.

Patrick: Yeah. For sure.

Pete: So a lot of homeowners, a lot of homeowners insurance policies.

Patrick: The big majority of that. Yeah. For sure.

Pete: Yeah, yeah. Awesome. Well, I appreciate you coming in. The big topic today, especially in California and Redding, as it relates to real estate and homes, is insurance. Right. That's why I wanted to have you talk about insurance in our area and California.

Patrick: Sure.

Pete: So, as I understand it, and my insurance for my house in Palo Cedro, I have a home in Palo Cedro. I was paying about $2,000 —$2,500 when I first started. Now it's about $5,000. So it's doubled in the last two years—right—two and a half years. So, I imagine many other families in Shasta County are experiencing increased insurance.

Patrick: Right. The days of $800 yearly premiums are out the window now, right? Things have taken a turn, and that's the last year and a half to two years. It's had a big impact, but it's slowly changed in the previous two years.

Pete: Yeah. I wanted to talk about this because, as you are well aware, you're a broker.

Patrick: Correct.

Pete: So you can broker to multiple different companies.

Patrick: We have over 50 different companies we can work with.

Pete: 50 different insurance companies.

Patrick: Correct.

Pete: Okay. I do mortgages, and I've found that you guys can write many policies that other insurance carriers cannot.

Patrick: Correct.

Pete: Able to write. Why is that?

Patrick: So Goosehead Insurance is a franchise, right? So we have agencies.

Pete: Okay.

Patrick: Across every state in the United States. So Goosehead's model is they do all the hard work for me to get all those carriers. They get them appointed, and then they give us access to them. So whether it's a carrier that's predominantly on the East Coast or the West Coast, Texas, Mid Panama, whatever it may be, we have access to those carriers.

Pete: Got it.

Patrick: Why are they called non-admitted carriers? They may not be licensed in California. That is what we only have left in California, right? You're talking about the other companies that have paused insurance, such as State Farm and Home State. Yeah. Right? What's left? So these companies are familiar.

Pete: They've been around. So, these are smaller companies that just provide insurance.

Patrick: They're larger companies. Typically, we would use an admitted company of someone licensed in California first.

Pete: Got it. So, let's break that down.

Patrick: Sure.

Pete: So you're saying that there are companies that can insure here that aren't necessarily licensed here?

Pete: Correct.

Pete: How does that work?

Patrick: Yeah, I mean, there are a couple of rules. You have the Department of Insurance, right? That regulates the insurance companies in California.

Pete: Okay.

Patrick: So, if you want to be an insurance company in California, you must apply and be appointed, right? Then you're licensed, and you have to follow DOI regulations.

Pete: Okay.

Patrick: I'll say DOI a lot, but that stands for Department of Insurance.

Pete: Okay.

Patrick: You must follow specific guidelines, including rate increases that must be filed and approved. Certain areas have to be preset for premiums, right? So you make all these set figures and set requirements. Yeah. And then you're golden, right? But say an insurance company doesn't want to deal with that, or they're licensed in Texas, Florida, or whatever it may be. Those are large states and large companies that deal with large claims. So they're not flat by net companies. They're A-rated companies, right? They just don't deal with the DOI regulations in California.

Pete: The Department of Insurance regulations.

Patrick: Correct.

Pete: And so what you're saying, what I heard you say is you have multiple other companies that you could have been using, but you have yet to because other companies were easier, better, easier to get insurance through quicker, maybe better processes. These other companies have California insurance but are not necessarily licensed. Why would they be giving insurance, or why? Let me ask you a different way. Why would an insurance company get licensed in California when they can still write a policy in California? That way, they wouldn't have to follow the Department of Insurance.

Patrick: Right. One of the biggest fears of not being licensed in California is that if, for some reason, they go insolvent, they don't have to pay out the claim, right? So this happened in the campfire. If you remember the campfire in Paradise, there was a smaller company out of San Jose. I am trying to remember the name, but they mainly insured manufactured homes. Well, guess what? Manufactured homes were the most significant loss in the campfire. Well, when you have such a large loss, they can just go insolvent if they don't have the assets or the money to pay out those claims.

Pete: So then they can go insolvent. But if you're licensed, you are held to a higher standard.

Patrick: You're held to a higher standard, meaning you must show profitability versus losses. You have to have that loss ratio. You have to have enough assets to handle the claims for your policies.

Pete: Got you.

Patrick: Right? You also agree to contribute to a fund, hence the California Ferry Plan, right?

Pete: Oh, if you're licensed for the state to do insurance, then they also have to participate in the fund, which is the California Ferry Plan.

Patrick: Correct. It's a slush fund, so they put money in. You have the right to say no in California. You're just like any other business that wants to be in California. You can choose not to participate or serve your clients by saying no.

Pete: You could say no but still provide insurance.

Patrick: Correct. By having that opportunity to be licensed, you have to be able to put money into the slush fund for the California Ferry Plan for the ones that you don't qualify for your company, right? So everybody has to have insurance if you have a mortgage, right? That's the law.

Pete: Correct.

Patrick: Correct.

Pete: Yeah.

Pete: So if an insurance company such as AAA or farmers or state farm says no, there has to be something for them to go to.

Pete: Which is the California Ferry Plan?

Patrick: This is the California Ferry Plan.

Pete: Right.

Patrick: What you have today is all those admitted companies like State Farm and Allstate and even my own, Progressive and Mercury. They've paused insurance in California, so they need to write business. So, if they still need to write business, we must find the next solution. While we have many companies, we underlie the next option, which is the non-admitted companies.

Pete: Non-admitted. That's important to understand.

Patrick: Correct.

Pete: Non-admitted.

Patrick: Non-admitted.

Pete: Non-admitted. Non-admitted just means they're not necessarily held to that higher standard. And they could be a great company—a great insurance company that has been around for many years—it's just that the state does not regulate them.

Patrick: They're not regulated by the state.

Pete: And the reason why an insurance company, let's say a state farm or a progressive, would want to get licensed in the state is, does this help them write more policies in general when they are writing? Is that why they want to do all the licensing?

Patrick: That's a question for the insurance companies, right? Whether they want to get into that boat. Of course, California is a very big state, right? Yeah. So, a non-admitted company isn't actively marketing California, right? They just happened to be appointed with an agency that would sell for them. Whether a state farm or farmers where they're licensed in California, they actively market. You see them on the progressives on TV, right? So you see them actively marketing.

Pete: Yes. Yeah.

Patrick: You won't see my non-admitted companies actively marketing.

Pete: Because they're not allowed to.

Patrick: That's true, but they're not licensed in California and are not pursuing business in California.

Pete: But they can still write in California.

Patrick: Yep. We must acknowledge and explain to the client that this is a non-admitted carrier. However, they are still A-rated. They have their license.

Pete: There are other ratings.

Patrick: Sure.

Pete: Got it.

Pete: They're licensed in the bigger states, too, Texas and Florida, which have hurricane losses, flooding, and a lot of stuff, right? Yeah. So they can handle the large claims.

Pete: So they may be licensed in other states, but not necessarily California.

Patrick: Correct.

Pete: And so they're held to that state's higher standard.

Patrick: Correct.

Pete: They still have to keep good books and some accountability. They still have accountability, just not necessarily California's.

Patrick: Just not California's.

Pete: Ah, wow. This is so interesting. I had no idea.

Patrick: Yeah. And that's the reason why we're in the boat. We're in California because it is a blue state that would go that route. Right. Politics have caused insurance companies to pause business, right? It's the ability to file for a rate increase but not get it. Nobody has approved a rate increase.

Pete: I did want to touch on that. It is one of my questions here. The Department of Insurance has been limiting the amount insurance companies can charge. Did I get that right?

Patrick: Typically, there's a cap on a rate increase request.

Pete: From year to year.

Patrick: 6% is what you averagely get approval for.

Pete: From year to year.

Patrick: Correct.

Pete: So 6% a year they can raise. Not anymore.

Patrick: I'm not saying that's not the case. Sometimes, they can get more, but they have to justify it and show the reasoning for it.

Pete: I see.

Patrick: And then get approval. It all has to go through a process.

Pete: Yeah. I got it. So when you have a campfire, a paradise fire, you have what they call a snowmageddon in Shasta County. All these insurance claims started coming in. I mean, snowmageddon was like... That was no walk in the park. Hundreds and hundreds of roofs were repaired through homeowners' insurance companies.

Patrick: Trees falling on homes.

Pete: Trees, and I mean, that was a huge claim for insurance companies, along with the car fire in Paradise and all that. So when you have these events that happen, they need to raise the rates more because they're having more claims. So it's just that a standard insurance company raises its premiums when it has more claims, like life insurance. If life insurance, more people are dying or, let's say, someone. They can raise the rates based on whether someone smokes or not.

Patrick: Exactly. The higher the risk, the more costly the premium is. Life insurance probably isn't a great analogy, but even with auto insurance—we won't get into that topic—autos cost more to build. They have more technology. The labor to replace them or repair the parts has gone up, so the cost to repair a claim has gone up significantly.

Pete: Oh, because of the cost of repairing inflation. Right.

Patrick: Blumberg.

Patrick: Exactly.

Pete: I see.

Pete: So you're talking.

Pete: So now you have the cost to replace. Right. So they have to factor in.

Patrick: Correct.

Pete: Okay.

Patrick: So all that will change everything, right?

Pete: That makes sense.

Patrick: The economy is raising prices everywhere, right? Yeah, food costs more. So it's natural that electricity and gas cost more. Why not insurance?

Pete: Yeah, it makes sense. So here's a question. We've seen a trend of major insurers either exiting the California market or imposing stricter conditions on policies. How is this affecting competition, and what implications does it have for homeowners seeking affordable insurance?

Patrick: Right. We talked about the admitted companies, right? Yeah. All state and state farms. We know they paused insurance. They know they need to write home insurance.

Pete: By the way, did most of the admitted companies get out?

Patrick: Not all of them. I mean.

Pete: There are still some.

Patrick: We still have companies that we use.

Pete: They're still admitted.

Patrick: But that's the other part of your questions, right? They put restrictions in place, right?

Pete: Got it.

Patrick: So you talk about you take away two or three big carriers that write business. Yeah. But everybody still needs insurance. Where are they going to go? To all the other companies, right? So, like Progressive or Mercury? Well, you can only write so much business. You have to slow down all that. They will only go elsewhere if everybody can do business with some state and state farms. Yeah. These companies can't absorb all those people, all those homes, and insurance. They can't do that. Yeah. Right. Because then they become inundated in a zip code and then.

Pete: There's a ratio.

Patrick: There is a risk for loss. Right.

Pete: There's a ratio for loss, so you can't put all your eggs in one basket.

Patrick: Exactly.

Pete: Okay.

Patrick: Right. So you have to manage that risk. So they have to find ways to stop writing business legally, right? Because legally they're licensed, legally they have to write the policies. Yeah. If they qualify in the system. Yeah. Right. You qualify if you have a subdivision and are right next to the fire department. You check all the boxes.

Pete: You still have to.

Patrick: Legally, they have to cover you. They have to insure you at the rate they've already set with the Department of Insurance.

Pete: Oh, I got it. So they can't say no. Right. If you're a delegate.

Patrick: If you qualify, if you check the boxes, right?

Pete: Right. But this is only for licensure. This is for companies that are with the state. Right. But you can decline anybody if you're not with the state. Yeah?

Patrick: You still have to check the boxes.

Pete: Got it.

Patrick: You still have to qualify and meet the risk with the underwriting requirements. Right.

Pete: Totally, but you can, but they, they can say no if you do check all those boxes.

Patrick: No.

Pete: Oh, they still have to write.

Patrick: They still have to write it.

Pete: Got it.

Patrick: Right. If I check the boxes, it legally qualifies in their system, right?

Pete: I see.

Patrick: But when an admitted company tries to pause business and not write more than it should, they can't. You have to figure out how to stop that from happening.

Pete: The only way to do that is to get out.

Patrick: The only way to do that is to either get out or figure out a way to put restrictions so they can make changes like pre-inspections, right? We need to see photos of your house before we insure this home. Yeah. Right? Then they can look at the photos and see that the tree's too close. We're not going to insure this house. They can find a way to say no legally. It's the same if they don't want to get out but they're trying to cut back on their policies. This happens often when renewal comes up, but they say we need you to cut back these trees. We need you to paint that E. We need you to remove that bush. And if you do all that and send me photos, we may renew you. Yeah. But they're trying to secretly cancel you legally by not ensuring you don't do that.

Pete: Yeah. So they're trying to limit the amount of risk they're taking.

Patrick: Exactly.

Pete: Yeah. Because they know they don't want to be saturated. They want to put only some of their eggs in one basket. And so they have to protect their nest egg. And so that makes total sense. Wow. Thank you for answering that question. I have a few more questions here. Do you know any changes, policies, or structures, such as sub-limits or requirements for property updates, and how these changes impact policyholders?

Pete: So we're talking like if a company's going to your view up for renewal, right? Yeah. The company has the right to say that we've inspected your house through satellite imagery, and we see that this tree is too close or overhangs the roof. You need to trim that, or you need to upgrade the electrical panel. A lot of these insurance companies allow you to take photos of the electrical panel, the plumbing, and all that stuff. And if they feel it's outdated, they'll cancel the policy. They'll say you must update this, or we'll cancel you.

Pete: Got it. Okay. Yeah. Okay, that makes sense. Yeah. Wow. There's so much to unpack here that it's crazy. So, with your average homeowner who owns a home currently or is even looking to buy, what tips would you give them? Like on the outskirts of Redding, you have Cottonwood, Palisadro, and some parts of Anderson, and you probably know these areas of higher risk more than I do. What creates more risk and higher costs for insurance?

Patrick: The number one thing I'd point out, especially if you're looking for a house, is where the part permit is. Make sure that it's at most five miles from your home. If it is, you tend to you. There isn't a single company in California that will write a home more than five miles away. And that's my non-admitted companies, too.

Pete: So only a few companies will write more than five miles out.

Patrick: Right.

Pete: If you're more than five miles out, what's the increase in price?

Patrick: It's not; it has become the California Fair Plan.

Pete: I see.

Patrick: The California Fair Plan took a huge rate increase effective 121. Let's talk about that because I think only some know this. I didn't. I heard this, but I'd like to understand it. So, the California Fair Plan is increasing its cost.

Patrick: They already did. So, in October of '23, they came up with a new platform for quoting the Fair Plan, which became live in November.

Pete: November.

Patrick: November. Right. And it was a huge hairball mess. This caused delays in mortgage closing because nobody could get a quote back for 45 days. Wow. Either way, my theory is that they were trying to stop quoting until 121 because the 121 became a huge rate increase, which passed, meaning that an insurance company like State Farm, I'm sorry, California FAIR Plan, imposed a rate increase of a max cap of 100%, which means they have the legal right to double your premium.

Pete: They could double it. Holy cow!

Patrick: Double your premium based on your area. So, the most likely place to see the effect is on the outskirts of town, Shingletown.

Pete: Really?

Patrick: Maybe Palo Cedro, Bella Vista. You have to match all the boxes. If you're more than five miles from the fire department, you're most likely in that rate of 100% rate cap.

Pete: Wow.

Patrick: On average, we could try a quote before 121, and after 121, the average was 50%, which is what we've seen.

Pete: 50% increase?

Patrick: Right.

Pete: In premium?

Patrick: Correct.

Pete: So if I'm paying 3000 a year, it's now 4,500?

Patrick: Correct.

Pete: Wow.

Patrick: And that's just the fair plan.

Pete: And this is for renewals?

Patrick: And new business.

Pete: And new business?

Patrick: Yeah.

Pete: Renewals and new business.

Patrick: Right.

Pete: Yeah.

Patrick: So stay away from homes.

Pete: If you can.

Patrick: More than five miles, if you can, right?

Pete: Let's say you already own a home like me, and I'm in this area of the higher zone, and they increased the price.

Patrick: Yeah. Part of the price increase notice that went out with the fair plan is that they also have the legal right to tell you how to reduce the premiums. There are a couple of checklists they send you pre-renewal or even at a new business that says you...

Pete: If you trim this tree.

Patrick: Yes, yeah. Can you verify that you have enclosed eaves and that your roof was?

Pete: Send us pictures.

Patrick: Yes. That can reduce the premium, as can what they call the Firewise community. Shingletown is the only one with a Firewise community. So what that means is that Cal Fire has worked with the California Fair.

Pete: Fair Plan.

Patrick: Fair Plan to create a safe area where they have great fire resources.

Pete: So they're managing the overflow, the brush. That's correct. And they're helping keep the risk of a brush or forest fire down.

Patrick: Correct. Your fire department will have that certificate, which you can upload to the fair plan to get it.

Pete: This is in Shingletown?

Patrick: Firewise. Yeah. Shingletown's a Firewise community.

Pete: Firewise. Okay. A homeowner may need to learn this, and they could get a discount if they had this.

Patrick: Correct.

Pete: So this is called a Firewise community. And what's the document called?

Patrick: It's just a certificate. It's a Firewise community certificate. And your fire department will have that.

Pete: They can get it from the fire department.

Patrick: Correct.

Pete: Have you experienced homeowners who don't know about this? They then go to the... Really?

Patrick: Yeah.

Pete: It happens a lot?

Patrick: Yeah.

Pete: So they could save on their insurance.

Patrick: They could be.

Pete: Wow. Yeah. And how much of a savings is it?

Patrick: It varies.

Pete: Firewise.

Patrick: It varies based on the construction of the house. Whether a manufactured home or a stick-built home, it will vary a lot.

Pete: Yeah. Yeah. So it's called a Firewise certificate.

Patrick: Mm-hmm.

Pete: Okay, okay, wow. I didn't know that either. This is awesome. The homeowner will get this notice and the recommendations for improvements or the brush they need to cut down. They can also take pictures of this or that. They could get a Firewise certificate from the fire department, which could help decrease that cost.

Patrick: Yes.

Pete: Let me ask you this. So, I bought it two or three years ago and had to get a fair plan then. Are there current homeowners with a California fair plan and could be insured by a regular company?

Patrick: It is possible. With our carriers' ability, we do it a lot, and we can sometimes get new carriers that will take you off the fair plan.

Pete: Got it.

Patrick: To be honest with you, it always happens. So we get new carriers frequently. We have a couple of new ones coming in January.

Pete: New carriers.

Patrick: New carriers, which allow us to look at all of our fair plan policies and say, Hey, can we get you off that? Or even purchasing new homes.

Pete: I see. Yeah.

Patrick: So that happens quite a bit. Companies mainly try to write insurance to get people off the fair plan. So, their main objective is?

Pete: Oh wow, it is to save.

Patrick: Is to write home insurance.

Pete: This seemed like a small opportunity in the marketplace, and they could come in and get some market share of premiums.

Patrick: For sure. Yeah. They're targeting that. Correct.

Pete: Got it. Okay. Cool. Well, that's cool because the competition is bringing the price down.

Patrick: That's true, yeah. The fair plan is intended as a last resort. They didn't expect as many people to be on the fair plan as they did, which implemented the changes they did on December 1st.

Pete: Question. Why did they increase the fair plan? Why did they get allowed to double the cost?

Patrick: That's politics.

Pete: So it was a state decision.

Patrick: Sure. A lot is going on in the state that they're trying to solve. And I'll give them credit for that. They're trying to solve the issue we have with insurance in California. They're trying to bring back the admitted companies like State Farm and Allstate. They're trying to get them back. But you have to realize they last had a rate increase five years ago, which means that for them to...

 

Pete: California Fair Plan hasn't?

Patrick: No. Your admitted companies that are paused are State Farm and Allstate.

Pete: They last increased their price five years ago.

Patrick: They have yet to approve an actual rate increase.

Pete: Higher than the normal 6%.

Patrick: At all.

Pete: Oh, at all?

Patrick: Right.

Pete: It's been declined.

Patrick: It's been declined.

Pete: Really?

Patrick: Yes. Which is why they've been—they're in the boat now. For five years, they haven't had a rate increase, per se, approved by the Department of Insurance, which means that over these five years, they've been slowly not raising their rates to become profitable. So they have to pause.

Pete: So five years ago, they were profitable, profitable, and then all of a sudden, car fire comes, and it's paradise.

Patrick: It's not just related to the car fire or the campfire. It's all losses, claims, and histories.

Pete: And it's the cost of.

Patrick: Repair.

Pete: Cost of replacement value.

Patrick: Right. And it's also the cost of reinsurance. So even these large companies have their own insurance companies. It's called reinsurance. They insure the home.

Pete: Yes. They're insuring their portfolio.

Patrick: Correct. For catastrophic losses.

Pete: So if they have a catastrophe, there are other companies, bigger companies, bigger fish that are also insuring it. That's like the credit default swaps back in 2006 and 2007.

Patrick: But go ahead.

Pete: So other companies insure the insurance companies. Okay.

Patrick: Correct. So, let's say five years ago, your house costs the insurance, and you paid 1000 bucks a year for your insurance to insure your home. Over time, their own insurance company may be increasing the premium. So you pay 1000 bucks, but the insurance company pays 500 bucks to insure that home with their own insurance company. Over time, the reinsurance company can raise their rates anytime. They can do what they want.

Pete: They're not regulated?

Patrick: No. So now your insurance company is charging.

Pete: We will have to put a visual on this for our customers and viewers to understand. So essentially, you have the insurance company insuring the family and another insurance company insuring the insurance company for a catastrophic loss.

Patrick: Correct.

Pete: So if a big hurricane happens in Florida or a big wildfire in California, and it's over a certain amount, then the insurance company that's protecting the insurance company will pay the losses or claim for that insurance company.

Patrick: Exactly.

Pete: This insurance company that covers insurance company that covers the borrower is not regulated so it can raise its price at any moment. It raises the price of state farm farmers. Of course, if it's paying more to do business, it has to raise its rates, but it can't because the state is not letting it.

Patrick: You've got it nailed down.

Pete: Wow.

Patrick: Right. So now they legally have to sell you insurance on a house that qualifies and checks all the boxes, even if it sells them at a loss.

Pete: Yeah, wow. That's insane. I had no idea. Okay. So I understand now why they got out of the business. They have to write, and their costs have gone up—everything, all the costs have gone up. So they have to write. So they just get out completely until they can raise their prices. So my next question is, why did they allow California Fair Plan to raise their price and not these other companies?

Patrick: I don't know the answer truly on that one.

Pete: Is it a good question?

Patrick: It's a very good question that probably deserves more digging.

Pete: And are other people asking the same question?

Patrick: Sure.

Pete: Yeah.

Patrick: And I can't justify why they did it. Other than that, part of what they're trying to do is if the whole scheme of things is that they're trying to raise the rates in the fair plan, which makes it unattractive—at the same time, trying to give the carriers that are paused a rate increase so they come back.

Pete: So they can come back into the market.

Patrick: Yes.

Pete: So they are working and talking with these companies?

Patrick: Exactly. They're working, negotiating, and trying to come up with an agreement where they'll come back and also increase their appetite, meaning they have a higher appetite for the risks of homes in areas with a higher risk. So State Farm. Yes, you can come back. Yes, we'll give you the rate increase you want, but you must find homes in cheaper towns.

Pete: They're saying you can't just be picky and choosy. You have to be... Yeah. And so now it's now it's a negotiating game with the state. We'll come back in if you don't require us to write policies in this super high-risk area.

Patrick: But the state, the Department of Insurance, wants them to cover more of those high-risk areas. So the fair plan has less.

Pete: They don't. The fair plan doesn't necessarily want to have the exposure it does.

Patrick: Correct. It wasn't intended for that.

Pete: How long has a California fair plan been around?

Patrick: Oh, for a long time since the beginning. I would not know that year.

Pete: So, has it been longer than just the last five years?

Patrick: Oh, oh, yes. For sure.

Pete: I just heard of the California Fair Plan three years ago.

Patrick: Oh, well.

Pete: Yeah.

Patrick: Three years ago, we've already had the campfire and the car fire.

Pete: Three, four years ago, maybe.

Patrick: We've now started to see the effects of what's out there.

Pete: Yeah. So, I didn't know about the California fair plan. And I don't know when I first learned about it, but I was like, wait, what? So, the fair plan's been around for a while. It's there to get insurance still if no other company will do it.

Patrick: Right. So, in a picture 10 years ago, we didn't care about fire—the hazards. We had people writing homes all over the place. What you mainly got declined for was the amount of claims you had. Insurance companies still deny you claims. So, if you had four or five claims because the home flooded, they can say no.

Pete: They could still say no. They could pick and choose you with that.

Patrick: So that was the main reason for the fair plan back then. So, if you were told no.

Pete: Oh, I see. You could still.

Patrick: You could go and get insurance.

Pete: That makes sense.

Patrick: Now it's been more of a use because nobody's writing.

Pete: Yeah. They just get out.

Patrick: By law, I have to have a fair plan.

Pete: Yeah.

Patrick: So they can't say no.

Pete: Wow.

Patrick: Fair plan doesn't say no. They can still say no if you truly have a poorly kept home. It's got to be habitable.

Pete: Yeah. It can't have health and safety issues?

Patrick: Correct.

Pete: Yeah. That makes sense. Yeah. It reminds me of 2006 and 2007 when we went through the mortgage meltdown because of FHA, the FHA loan. That loan took off during that time. Like no one, everyone was doing FHA. FHA loan was meant to be for some. The mortgage insurance for FHA is the same cost, no matter who you are or your credit score. And it's still the same. However, they had to raise the mortgage insurance because of many claims. So, they raised the cost of mortgage insurance. They lowered it some since then. However, before 2006, the mortgage insurance cost for an FHA loan was 0.35%. Or you could pay 0.35% and about half a percent upfront. They said it was 1.25% from 0.35% plus a 1.75% fee upfront.

Patrick: Crazy.

Pete: Yeah. But it's come down a little bit. But it makes sense. So, they raised the price there. Okay. They raised the California plan now because they say, hey, we need to increase the price. After all, everything's going up. But it's the same reason State Farm and all the other major carriers, Progressive, want to raise their rates.

Patrick: They still have to have the portfolio to cover losses. So they have to raise the rates. As much as the business they've been writing in the last year and a half, they have to raise the rates to become profitable, to maintain enough losses or enough money to cover the losses. So, the more risk you take, the more you have to have something in the bank to cover the losses. Otherwise, you're just as good as a non-admitted carrier.

Pete: Makes sense. Yeah.

Patrick: Right, so.

Pete: FHA was at a loss for a while there. In other words, the government was paying to cover the losses of the claims until, over time, it started becoming more profitable when the foreclosure stopped happening. That makes sense. So, the California Fair Plan has to be profitable. They have to have money in the bank to pay the claims. Okay. Regarding our specific area in Shasta County, what area is it? I know you said five miles, but I get that. Are there? Like I was surprised. I'm looking at a house, and I'm looking at maybe buying this house down in Cottonwood, it's off Hooker Creek. And I was surprised the premium came in. You sent it to me as 250 a month, which is what it is like yearly. Like 1800 or something like that?

Patrick: Yeah, it was pretty close. Yeah.

Pete: Yeah. I was like, wow, that's good. But that's from a non, what'd you call it?

Patrick: So that was a non-admitted carrier.

Pete: Non-admitted carrier, right? Non-admitted carrier, yeah. I'd be okay with it. I'll research the company and make sure that they are legitimate companies.

Patrick: And Goosehead will not take on any carrier that won't have the A rating companies. Yeah. A-rate is what you're looking for.

Pete: A-rated.

Patrick: A-rated companies.

Pete: Okay, that's a good question. Where do you go to find the ratings of these companies?

Patrick: Yeah, there are a couple of different companies. They're independent companies. One, you can subscribe to them and list your business there, just like Google reviews. You can pay too.

Pete: I see.

Patrick: But then there are a few other entities that don't charge that are truly more accurate, I think, for other companies. I don't remember the name off the top of my head, but typically you can search the rating of an insurance company, and they'll take you to a few different websites listing it.

Pete: I see.

Patrick: You just type the name of the company and there and tell you what the rating is. Kind of the better business bureau for a business.

Pete: Yeah. So you put in the company's name and say, and look for anything bad.

Patrick: Yeah. Yes and no. I hate to say that everybody leaves bad reviews on the internet. Hardly anybody who leaves good reviews. So, that goes for any company. But you're looking for independent companies whose only job is to manage the ratings of insurance companies.

Pete: I see.

Patrick: So, I think Demotech is another.

Pete: Demotech?

Patrick: Yeah, I think Demotech is what it's called. It's D-E-M-O-T-E-C-H. And they're one entity that doesn't charge to list anybody. So they manage everything independently.

Pete: I see.

Patrick: They list everybody's rating companies on there. So, it's a good one to look at, too. So look at that, get the A rating company, make sure it's good. If it's A-rated, you know they have the assets to cover losses. Pretty much.

Pete: Okay. Awesome. Wow, there's so much information here that we did a lot of unpacking. You said any areas where you are longer than five miles away, but I'm like in Cottonwood. I don't know if there's a fire station where I'm in Hooker Creek. I think there is, then.

Patrick: You got one just down the road, just before the West Anderson.

Pete: Got it. Okay. Yeah. Okay. That's cool. Yeah.

Patrick: We talk so much about the insurance and how gloomy it is. I get it. The good part is that Progressive has shown profit in the last quarter of '23. Progressive is one of the largest companies in the USA. Largest automotive carrier, next to Geico. So they put in restrictions early in '23 and were able to show a profit in '23, the last quarter, which means they have decided to reopen in January. So we're expecting Progressive to reopen, which is great news because other companies are following suit. After all, they showed a profit. So, 2024 will show some good light coming at the end of the tunnel.

Pete: Good.

Patrick: Some carriers are coming back. Wow, it's 2025 before you see some normalcy in the insurance market. But I think it's a good sign that Progressive's coming back.

Pete: Yeah. Negotiating with the state and the insurance companies can take a while. I've heard that this takes a while.

Patrick: Yeah. I've heard rumors that I have contacts with State Farm people who have told me they're rumored to return in 2025.

Pete: Yeah. Another year. Yeah. Wow.

Patrick: You have to realize they have 48 other states, 49 other states they can write and still be profitable. Why do they need California?

Pete: Yeah, it makes sense.

Patrick: That was a big risk, and they showed they could still do it.

Pete: Yeah. So, wow. Interesting. Do you have any advice for existing or new homeowners on getting quotes? What to watch out for? Tricks? I sent a lot of people to you.

Patrick: Thank you.

Pete: I have been able to help in this market with insurance. And you guys have helped out a lot. Do you have any advice, like how they get insurance quotes? From Goosehead?

Patrick: Yeah. I mean, Goosehead Insurance, our office is on Victor Avenue. You can call our office at 530-223-5600. You can ask anybody. You can Google, or just. It's easy to get ahold of us. My advice to anybody who has a current insurance policy for the auto side is if it's renewing and it's gone up a little bit, pay it. There are only a few options out there—other insurance companies.

Pete: For auto?

Patrick: For auto. Just pay your bill. Don't let it cancel. Insurance companies are looking for ways to avoid writing your insurance right now. So don't pay for it. Pay it. For the home side, it's okay to shop around. But do it before your policy cancels. If you get a lapse in coverage, it makes it very difficult. We don't want that. And if you're buying a home, get the shopping done on the insurance done early. Don't let that factor be the reason why you lose your home in escrow. We saved your clients a lot of money before. We're happy to do it again. But I recommend that to anybody. Make sure you know what you're getting yourself into before you get into escrow that you can't get out of.

Pete: That makes sense.

Patrick: I know you advise your clients of that, too.

Pete: Yeah. Are you saying you should do your due diligence on insurance before entering into a contract?

Patrick: Correct.

Pete: Absolutely. Yeah. On day one, I tell them to get an insurance card.

Patrick: And they do.

Pete: Yeah. Yeah.

Patrick: So that's the only thing I can recommend.

Pete: Okay, that's cool. That's most of everything. We covered a lot. I'm going to skim through my questions here.

Patrick: Yeah. Manufactured homes, too. That's a good one.

Pete: Oh, manufactured. Yeah.

Patrick: We've seen house prices increase, so people resort to manufactured homes.

Pete: Manufactured homes.

Patrick: The cost is higher in their price area. Still today, the only insurance company that will write manufactured homes is the California Fair Plan.

Pete: Really?

Patrick: The good news is that our office has access to one of those two new carriers this month. One of them is this Friday.

Pete: Oh, Wow. That's great news.

Patrick: Yeah. We are the only insurance company that can insure manufactured homes outside of California.

Pete: That's great news.

Patrick: So, super excited about that.

Pete: So a lot of these companies, if you're a manufacturer, let's say I had State Farm and I had a manufacturer. Did they get canceled?

Patrick: It's possible.

Pete: They got renewed or grandfathered in.

Patrick: Grandfathered in is out the window. There is none of that anymore, but it depends on the characteristics. State Farm can renew the policy.

Pete: If they complied and did everything. Yeah. If they complied and did and did everything, but they're trying to cancel, they're trying to find ways to get legal.

Patrick: Yeah. They'll make you do the inspections, photos, etc. But I don't have any indication that State Farm is canceling its policies. They're just not writing any new policies. I have a lot of friends at State Farm.

Pete: I have State Farm. I like State Farm a lot. They're a great company. It is just they're not writing.

Patrick: They just paused business because they couldn't get any rate increases. And I get it. I get it. Hopefully, they come back. But right now, I just know they need to write business. They shouldn't be canceling anything yet.

Pete: Okay, so manufactured homes, you're getting two new companies that are carriers that will be able to write other than the California Fair plan?

Patrick: Yeah, exactly.

Pete: Okay. Cool. So that's, that's great news. I have a lot of clients. I've done much more manufactured financing in the last 12 months than in my entire career. So that's going to be great. That's good. I am looking forward to that.

Patrick: Cool.

Pete: Cool. Let's see. I'm going to look at some of these more questions, and then, let's see. Were you going to say something?

Patrick: No, I know we had a lot of questions on there, so there's a big topic here to discuss. So yeah, it's on everybody's minds.

Pete: So we talked about the future. So, we're thinking 20 in another 12 to 24 months. We could see it back to a little bit normal.

Patrick: I'm hoping so, yes.

Pete: For insurance.

Patrick: That's what it's looking like.

Pete: If the state negotiates and allows, it still costs more because the replacement cost is much higher.

Patrick: Yeah. You have to realize the costs are going to go up. Again, the $800 yearly premium on home insurance is gone. It just isn't going to happen anymore.

Pete: Okay. All right. Let's see. We haven't even discussed commercial insurance, but that's a big top. I don't have any. I have a friend who's in and does commercial insurance policies. But I heard that the market is getting challenging, especially commercial property.

Patrick: Surprise. I mean, it will still follow the same fire hazard rules. Some companies will say no because the home's on fire and the building is in fire hazard. It just really depends on what it is. I do a lot of commercials. I do a lot of Lessor's risk policy. So those are people that buy commercial buildings, and then they lease them out to subtenants. Like strip malls, et cetera. I do a lot of those. I have carriers for that; there are more carriers for that than I do for auto insurance.

Pete: Oh wow. So that market is okay. To me, it's perfectly fine.

Patrick: Okay. But I've heard that some companies are starting not to renew commercial insurance.

Pete: Yeah. Okay.

Patrick: Just a market they don't want to get in.

Pete: Okay. Awesome. Well, thanks a lot, Patrick. I think we covered almost everything. So, I'm just going to recap it for our listeners. If you own your home, get another quote and then make sure you pay attention to your insurance policy. We also talked about the Firewise community. See if you live in a Firewise community Firewise certificate. We covered that. If you're a new homeowner, get a quote sooner rather than later.

Patrick: Get it before you get locked into that term with your mortgage.

Pete: Yeah.

Patrick: For sure. Cool.

Pete: Cool. Well, thanks a lot. I appreciate you stopping by.

Patrick: Glad I can help.

Pete: Yeah, thank you.