December 6, 2024

Landlord Insurance in San Francisco in 2024

The market for so called Landlord Insurance policies has changed dramatically in 2024.

What type of insurance is a Landlord Policy?

Who needs a Landlord policy?

Short Term vs Long Term Rental Insurance needs

Commercial vs Personal Lines Policies

Age, Building Type, Specific Locaion, and Other Underwriting Criteria for Landlord Insurance

2024 The Year Landlord Insurance Changed in San Francisco, California:

As recently as the early part of 2023, lots of admitted insurers were writing landlord dwelling policies in the city of San Francisco. The market had thinned, but insurers such as Guard, State Farm, and Farmers were still writing these policies. However State Farm changed their acceptance and most of the remaining independent and captive insurers quickly started taking more property insurance business than they could handle. One by One, insurers stopped accepting new Landlord policies. Guard, Nat Gen Premier, Kemper have decided to leave the state of California. State Farm put a moratorium in place. Farmers started limiting new property policies and many insurers went into what we might call unofficial moratoriums, meaning they are not accepting new policies. These include Stillwater, Aegis, Foremost, and numerous others. Many of the larger commercial apartment building insurers have halted or severely limited underwriting requirements as well.

Additionally some insurers increased their underwriting requirements. Changing their acceptance rules for only structures built after say 1980. Others expect all new components and systems. Every system from 1990 or newer, with some carriers.

Regardless at the end of 2023 we are left with a very changed market. 2024 is a new year with a new reality. ACV, Nonadmitted, and Very limited options. Welcome to the 2024 Landlord Insurance market in California.

What is a Landlord Policy?

Lets back up first and review exactly what is meant by the term Landlord Policy. Technically the term Landlord policy is more of a consumer term. Most landlord policies are written as DP3, DP1, and occassionaly HO3 policy forms. Additionally they can written on commercial property forms. Landlord insurance can loosely be defined as property insurance for tenant occupied dwellings. Note – NOT vacant dwellings, but tenant occupied dwellings. Depending on the insurer this is usually at a minimum a 6 month lease. For some insurers it may be 12 months.

Landlord policies have three major components:

• Property Insurance
• Liability Insurance
• Loss of Rents Coverage

There are other more minor coverages, but those are what I would classify as the big three. Typically a DP3 Landlord Policy will satisfy mortgage insurance requirements.

Dwelling Policies – 3 Types: DP1, DP2, DP3

There are three general types of dwelling policy forms: DP1, DP2, and DP3. The DP1 [Dwelling Policy 1] is the most limited coverage form and saved for situations, typically, when a broader form of property coverage is NOT available.

The DP2 policy will often [but not always] cover you for the perils of Fire, Lightening, Hail, Windstorm, Smoke, Aircraft, Volcanic Eruptions, Riot, VMM, Burgalar, Weight Ice and Snow, Glass Breakage, Freezing Pipes, Electrical Damage, Some types of Collapse. Please see your own policy for exact coverages

But a DP3 according to Bankers Insurance “is the most comprehensive dwelling fire coverage available. It is an “open perils” or “all risk” policy, which means real property (dwelling and other structures) will be covered for all types of damage, except those exclusions named in the policy.” Those exclusions will vary by policy form and state. Common exclusions include: Flood, Earth Moveement, Water Damage, Ordinance Law, Neglect, Intentional, Mold/etc. And many many more – check your own policy form.

Please note that the term “All Risk” does not really mean All Risks. I frankly do NOT like the term.

Commercial Insurance is Another Matter:

Those are the options in the personal lines world of insurance. For larger buildings we use Commercial Property and Commercial Liability forms, which are an entirely different matter. Commercial forms are not as simple to classify. In general if the building has more than 4 units, we are talking about a commercial policy form. If the building has any sort of business exposure [Retail, Etc] – we are talking about a commercial policy form.

There are other reasons to classify a dwelling as a Commercial policy form as well.

Short Term vs Long Term Rental – How do you Insure it?

If a property is being rented out on a steady weekly or Off and On weekend type usage the exact best way to insure it – is not at all clear. You will want to inform your insurer and insurance agent of the situation. Some situations with some insurers are best placed in the DP3 program and others are best in the HO3 program. Agents will follow the underwriting guidelines of the insurers.

Renting out a property even for a short weekend is a huge liablity exposure. And the insurers treat it as such. It may also be a property and loss of rents exposure.

Who Needs a Landlord Policy?

Owners of properties that have long term teants needs landlord policies. Owners of properties that have short term tenants probably need landlord policies. If you own a house and you are not living there [and someone else is] than you need a landlord policy. Homes that are vacant – probably need a Vacancy policy.

The term Landlord Policy is not really an insurance term as much as a marketing term. I prefer, professionally, the term Tenant Occupied Property Insurance or something along those lines. Regardless Landlord or Tenant Occupied Property insurance is needed if people other than the owners live there. If you own a house and reside in that house you may procure Homeowners or what I prefer to call Owner Occupied Property Insurance. Technically speaking in some limited situations a Homeowners Policy can be endorsed to become a Landlord policy. However this is farily uncommon in California during the current insurance crisis.

Commercial and Personal Insurance for Landlords:

Without going into the full details on this, suffice it to say that you can technically insurer properties on either a commercial policy form or a personal policy form. For dwellings that are 1 to four units. Duplex, Triplexes, Quadplexes, they are often [but not always] insured on Personal lines forms. Five units and more are insured almost exclusively on commerical policy forms. Buildings that have a commercial non residential exposure – say a Starbucks in one of the units is usually insured on a commercial property policy as well.

Not all of the insurer define and look at the properties the exact same way. So the rules here are not so by the industry but more by insurer.

Underwriting Criteria for Landlord Insurance Policies:

IRMI defines underwriting guidelines as “the set of rules and requirements an insurer provides for its agents and underwriters.” This simplistic definition misses much of what underwriting actually is. Underwriting criteria are often both very specific and very general rules. One underwriting rule may say this program is limited to pressurized plumbing systems entirely made from copper. Next to it may say require Pride in Ownership. One is more clearly a hard fact and the other is open to much interpretation.

Regardless Underwriting Criteria for Landlord Policies in San Francisco have become much more onerous.

There is no complete list of underwriting criteria across all insurers. Some insurer do not consider certain aspects while other insurers do. However here are are few of the underwriting criteria, especially as it relates to San Francisco and the surrounding SF Bay Area.

General Loction: This could be the own name, zip code, county. And because of regulation the state as well.

Specific Location: This was rarely used 10 or 20 years ago, but now more and more insurers have databases that they look up down to the house level.

General Build Characteristics: This is a very open ended category – but it basically refers to what exactly the insurer might be insuring. A standalone house, a Duplex, a commercial office, a converted condo, etc.

Property General Condition: What is the general condition of the property? Has it been cared for over the years? Are their broken windows or deferred maintenance?

Age of Building: The age of the building is the age that the building was started. The first brick layed, the fist pier sunk. For buildings from around 1950 and on, typically there is good data as it relates to this. For buildings before this….well it may be open to some interpretation as many municipalities did not keep great records. I have seen claims that the age is based on when the building construction was finished, but the start date seems like a more clear response. Once common consideration is challenges is that homes that have been massively remodeled – may still get listed as the original construction date – NOT the remodel date. This is insurer specific, but most insurers only consider it say a 2012 home if the entire previous 1930 structure was taken down.

Number of Units: How many residential units are there. As previously stated, often four units and under can fall under the personal lines markets and five units and more go into the commercial markets. There is one major insurer, whom I do not work with, that has their cutoff at six units.

Specific Build Characteristics: There is No complete list here. These though are some of the more common or common ones as it relates to San Francisco.

• Roof Age, Type, Disposition
• Siding Age and Type
• Plumbing Age, Type, Disposition
• Electrical Age, Type, Disposition.
• Cirucuit Breakers Age and Brand Name
• Is there any Knob and Tube Wiring? [Read Knob and Tube is Uninsurable]
• Foundation Age and Type
• Is the foundation open in any way under the structure?
• HVAC Age, Type, Disposition
• Other Structures Age, Type, Disposition
• Safety Systems – Alarms, Sprinklers, Deadbolts, Water and or Gas Shutoff Etc

-this is not intended to be a complete list.

*One note here – Disposition is the condition of the material and build. Does it look like new or that it needs attention?

**The age of all of these can be defined along two paramters: The Original Date and the Last Partial Updated Date. The original date is the age of the oldest component. The last partial updated date might be as simple as the last time some pressurized plumbing was upgraded.

Trees and or Brush Clearance: Do any trees hang over the building? Is the wild brush cleared from your property?

Claims Experience: Get your Loss Runs ready. How many insurance claims have you had in the past five years? Are those claims open or closed? What have you done to fix the situation with those claims? When did those claims happen and what were the payouts? Obviously less insurance claims matter and a lot. A copy of the Loss Runs from your current insurer is usually required. Simply defined this is a letter from your insurer stating their claims experience with you.

Commercial Exposure: Are any of the units used as businesses? A dentist office or Accounting firm? Is their a Coffee Shop operation? Any Welders or other Blue Collar businesses? Or is 100% of the structure used as residences.

Occupancy Type and Present Vacany: How many of the units are vacant? Are the units rented as residences and or businesses. How long have these units been vacant? Who Resides in the property?

Building Ownership: Who owns the structures, all members listed on the title and or loan. LLCs, Corporations, and Trusts can – in some situations be harder to do.

Other Exposures: Dogs, Foot Traffic, Business Traffic, Rights of Way

What has Changed with Landlord Insurance in San Francisco in 2024?

Lots. Lots of changes have come about because of the California Insurance Crisis. In a simple nutshell the market for landlord insurance in California has dramatically changed due to climate change, insurers retreating, underwriting standards increasing, and insurance inflation. There are other reasons as well.

One thing is for certain – if you are being nonrenewed, buying a new property, etc – there are very very very few options for landlord policies these days. Older buildings, buildings with galvanized steel plumbing, etc are really going to have it even more difficult.

What Should Landlords Do about the Scarcity of Insurance Options Available?

Rule number of of the current insurance crisis is to stay with your current insurer where reasonable, assuming you have something approaching the proper coverage. Rule number two might just to be to attempt to limit some insurance claims. Mind you I am not suggesting that you do not file insurance claims, rather do what is reasonable to prevent some.

That all being said if you are unlucky enough to get an insurance nonrenewal – you will want to reach out to a qualified insurance professional to consider your options. Be prepared with a copy of your current insurance documenation including your Loss Runs. Get all of the details of your property together [much of that list is in this blog post.]

Expect to pay more for less, potentially far less, coverage. Your policy might be on a nonadmitted form, from the CA Fair Plan, or worse. It may be written on an ACV [Actual Cash Value] basis, which is the inferior building valuation method used. You may only be offered limited internal water damage coverage, or a policy with a roof exclusion.

Who is at Most Risk of Being nonrenewed for Landlord Insurance?

That is a tough tough question. For obvious reasons any State Farm landlord policy, seems, based on reports, to be at risk of nonrenewal. However if you are a State Farm insured, I would inquire with your agent. Buildings that are older, closer to wildfire areas, or have not been updated in recent years may be at increased risk of nonrenewal. There are a few other insurers that seem to be bailing from this market.

Insureds that move out of their home and that have homeowners insurance and inform their home insurer that they have moved out – will have to change their insurance, to be properly covered.

Speak with your Agent About Changing Insurance

Reading about insurance is helpful, but do not make changes based solely on this article. Speak with a licensed agent whenever you are considering making changes to any type of insurance. Thank you for reacing this article about Landlord Insurance in the San Francisco Bay Area.