Over the past few years, all homeowners, but especially those in the Santa Clarita Valley, have seen the cost of homeowners insurance rise to levels that are unaffordable for many. The increased frequency of catastrophic events, accompanied by rising building costs, have combined to create this situ ation. I suspect the crisis will intensify in the near future as the financial impact of the recent fires works its way through the system.  Last summer when our homeowner’s insurance policy was up for renewal, my insurance company sent me a thorough analysis of what it would cost to rebuild our house. They had previously sent a representative to tour our house who took numerous photos and jotted down extensive notes about the quality of construction and improvements.   I was surprised to see that the insurance company’s cost estimate of totally rebuilding our house was about $300,000 more than it was worth. I shared the analysis with a couple of contractors who advised me that the insurance company’s estimate was indeed fairly accurate — especially if the house had to be rebuilt after a significant casualty event like a major fire or earthquake.   The insurance company’s rebuilding cost estimate came to about $340/square foot. That may be too low. The Wall Street Journal recently reported that rebuilding costs in Pacific Palisades could be reduced to approximately $500/square foot by using prefabricated homes. While construction costs in Pacific Palisades may significantly exceed those in Santa Clarita, construction costs are probably higher than we perceive them to be.  Furthermore, construction costs are likely to continue to escalate because lumber and other building materials are increasingly subject to tariffs and reprisals by exporting countries. From a labor perspective, many construction workers who reside in the U.S. illegally may be subject to an increased deportation risk, thereby reducing the supply of construction workers and increasing the cost of construction labor.  When I received my insurance bill last summer, I felt fortunate that it only increased by 46%. My brother and daughter were both notified by their insurance companies that their policies would not be renewed. When they obtained new insurance, their insurance premiums tripled.   Another new wrinkle to the problem was reported this past week in the Wall Street Journal. Most mortgage lenders sell the mortgages they originate to Fannie Mae. Evidently, Fanie Mae maintains a list of blacklisted homeowners associations that do not carry sufficient property insurance to pay for building repairs after a casualty event. Fannie Mae refuses to purchase a mortgage that is collateralized by a housing unit located in a development that is part of one of those HOAs.  Consequently, buyers of homes in those HOAs are unable to obtain a mortgage to finance the purchase. That means sellers have to settle for selling to an all-cash buyer at a discounted price. While the majority of those HOAs were in Florida, Texas and other states prone to hurricane damage, California apparently has a large number of affected HOAs.  In California, insurance is governed by the provisions of Proposition 103, which was passed by voters in 1988 to regulate what, at that time, were perceived to be out-of-control insurance costs. Nealy 30 years later, the Prop. 103 infrastructure is not designed to address the significant change in insurance underwriting resulting from increased risk and inflation. Consequently, insurers are cancelling policies and leaving the state. Inevitably, many Californians are either underinsured or carry no insurance at all.   Solving the insurance crisis is going to be exceptionally challenging. All levels of government will have to overcome political differences and work with the insurance and construction industries to deal with the crisis. This is likely to be very costly at a time when home ownership and housing costs are already becoming increasingly unaffordable.  We will have to think outside of the box to implement improved construction techniques that make structures more resistant to fires, storms and earthquakes. We may have to redesign neighborhoods after a casualty event and we must implement fire-related design improvements in new neighborhoods that encroach upon natural areas. Overcoming NIMBYism will be another challenge.  From an insurance perspective, we need to make it feasible for insurance companies to underwrite affordable insurance. That means creating an environment where insurance companies will compete for business. There is a role for regulators because the marketplace must be competitive without the formation of oligopolies like those that exist in health care.   Only a multifaceted approach accompanied by reasonable concessions from all stakeholders will result in solutions to this insurance crisis.  Jim de Bree is a Valencia resident. The post Jim de Bree | Dealing with Insurance a Tall Order appeared first on Santa Clarita Valley Signal. ...read more read less