Sunday, March 31, 2024

"Californians’ home insurance is being dropped due to ‘density.’ What does that mean?"

From the San Francisco Chronicle, March 30:

Last October, Marc Snyder’s insurance company informed him it wouldn’t be renewing his homeowners insurance this year for a reason he had never heard before: density.

The letter from Liberty Mutual said Snyder’s home was “located in a region where the dwellings are considered to be too densely concentrated for us to continue to provide coverage.”

Snyder was confused. After all, though he lives in San Francisco — the second-most densely packed major city in the United States — his single-family home on a quiet street in Noe Valley is hardly the image of closely packed housing. 

“I thought it made no sense,” he said. 

Brokers and industry experts say “density” is a relatively new term being tacked onto a familiar concept — one that may be affecting more homeowners across the Bay Area as California’s insurance crisis worsens.

In an insurance context, density could mean two things, according to Amy Bach, executive director of the consumer advocacy group United Policyholders: either physical density or the concentration of a particular insurer’s policies.

In the first instance, an insurance company might not renew a home in a physically dense neighborhood because it’s worried about the risk of fire spreading quickly between tightly packed homes.

“You can do everything you can to make your home less likely to burn, but if your neighbor hasn’t done anything, and they’re right next door, their house is going to catch your house on fire,” Bach said. 

In a city like San Francisco, the chief concern isn’t wildfires, but instead fires following earthquakes, according to Jerry Becerra, president of Barbary Insurance Brokerage in Oakland.  One prominent example is the fires following the 1906 earthquake — which left the city with 60,000 destroyed buildings. Though major insurers do not cover damage from an earthquake itself, they are on the hook for fires that may result.

Alternatively, an insurer might cite density in cutting down the number of policies in a given area to reduce its liability in case of a catastrophic event, Bach said. 

Non-renewing policies in order to reduce a company’s concentration of risk is not a new practice, according to Janet Ruiz, strategic communications director for the Insurance Information Institute, a nonprofit trade group. 

Insurers are trying to avoid a situation where they might not be able to pay off all claims if a wildfire or flood devastates an area, Ruiz said. She pointed to the example of Merced Property & Casualty — an insurer that covered many of the homes devastated by the 2018 Camp Fire and subsequently became insolvent due to the costs....