Habitat Puts Families in Affordable Homes. Insurance Crisis Puts that at Risk.

Without insurance, Habitat can’t sell our homes to those who need them.

As the executive director of Habitat for Humanity California, I’ve watched my colleagues learn through experience how to manage the many challenges of building affordable housing in California —  from fighting red tape to securing permits to accessing limited government and charitable funds. Using the expertise, our 33 Habitat affiliates across the state build and repair about 800 homes each year.

But we have recently found ourselves confronted with a new obstacle in our quest to provide housing for lower-income families. And this obstacle is preventing us from putting families in the homes we have built.

In California these days, it has become increasingly difficult to obtain an insurance policy for a new home. Worse yet, it’s becoming even less likely that existing policies will be renewed.

Without insurance, we can’t sell our homes to families who need them.

​California’s homeowners’ insurance crisis has been building for years and is pushing us toward an economic calamity that will freeze real estate markets by making mortgages impossible to obtain. Many Habitat for Humanity affiliates act as the lenders for the homes they build and sell; the many government and financial partners it takes to execute a house sale will not risk committing capital to homes that could be lost without any mechanism to recover that loss.

It’s in everyone’s interest to fix this emergency and to do so without delay.

​The pressure on the insurance market has been building because of California’s new climate reality, one most often experienced through extreme weather events that drive up the risk of property damage. 

But equally important, it’s a crisis caused by an antiquated insurance regulatory system that was established in the 1980s, long before catastrophic wildfires and other climate-related disasters began to regularly ravage our state. This 35-year-old system is too slow to respond to the realities of climate change and lacks the built-in adaptability necessary to maintain a healthy and balanced insurance market.

This is the reason why eight of the state’s 15 largest insurance companies have either restricted access to new policies, dramatically increased rates or decided to pull out of the California market.

​The situation has triggered a stampede to the state-facilitated pooled coverage called the Fair Access to Insurance Requirements Plan, which was intended to be an insurer of last resort that would temporarily provide coverage for some homeowners when no other insurance was available. Enrollment in that plan has nearly tripled since 2018, and customers are staying on the plan long-term, which is more expensive and less comprehensive than traditional insurance policies.

​Moreover, given the volume of policies the FAIR Plan is issuing, it’s just one disaster away from insolvency.

​How do we get out of this mess and give homeowners viable and affordable options to get coverage in the private insurance market?

​Some strides are being taken. Insurance Commissioner Ricardo Lara has put forth a Sustainable Insurance Strategy, but the process to get tangible reforms reviewed and finalized must be accelerated for homeowners to get relief any time soon. Meanwhile, the California Department of Insurance must streamline the rate review process. Rate reviews are delayed up to a year or more — and are often outdated even before they are implemented.

​Insurance regulations must also be updated to allow insurers to include the cost of purchasing reinsurance when calculating rates. California is the only state in the country that blocks insurers from including the actual costs of insuring against catastrophic losses.

In addition, state regulations must allow insurers to use advanced computer modeling so that they can more accurately calculate the risks of major wildfires and other catastrophic events.

We at Habitat for Humanity California want to keep increasing access to homeownership for all Californians by building and selling homes affordably. We want to continue providing brighter futures and economic stability to hard-working families. But that means when our homes are finished, families have to be able to obtain affordable home insurance and move in.

Considering all the other obstacles to providing affordable homeownership, that hardly seems too much to ask.

Debbie Arakel is executive director of Habitat for Humanity California.