By Megan Fan Munce, SAN FRANCISCO CHRONICLE

https://www.sfchronicle.com/california/article/state-farm-insurance-fire-19497029.php

Some State Farm customers in California who were bracing to lose their home insurance have instead received an unexpected message from the company: They can keep their coverage after all, but the policy cannot include fire damage. 

In March, State Farm announced it would not renew approximately 30,000 homeowner policies across the state based largely on the risk of wildfires and fires after earthquakes. But now it’s telling some of those customers that they can keep their policy if they also sign up for the California FAIR Plan for fire coverage, according to a letter sent out by the company. 

A spokesperson for State Farm said customers affected by the nonrenewals “may be eligible,” but did not clarify how many customers would be offered continued coverage. State Farm is the largest home insurer in California, covering about 1 in every 5 homes in the state. 

The FAIR Plan is a state-created but privately run insurer of last resort which, at its most basic, covers damage from fire, lightning, internal explosions and smoke. It also offers optional coverage for damage such as vandalism at an additional cost. Other types of coverage, such as water damage, liability and theft, require a secondary policy. 

If a nonrenewed homeowner who receives the offer signs up for the FAIR Plan, then State Farm may continue insuring their home for all damage other than what the FAIR Plan is able to cover, according to a company spokesperson. 

“We recognize that the insurance market in California is challenging and securing property insurance has become more difficult. We are doing everything we can to support our customers during this time,” the spokesperson said in a statement. 

Getting a State Farm companion policy to the FAIR Plan will also allow homeowners to keep their discounts for bundling multiple policies, according to Michael Soller, a deputy insurance commissioner with the California Department of Insurance. 

The State Farm representative did not clarify how the reduced insurance will be priced. State Farm — which raised its rates by 20% on average for all California homeowners in March — wrote in filings with the state that homeowners that sign up for a FAIR Plan companion policy would get a 5% premium reduction. 

Getting coverage from the FAIR Plan often comes at a hefty cost. A spokesperson for the association previously told the Chronicle that it is difficult to calculate an average premium for the plan due to the wide range of properties it insures, but some homeowners have reported paying several thousand dollars annually despite having coverage limited essentially to fire. 

Edan Cassidy, an independent broker in Scotts Valley (Santa Cruz County), said he had heard of State Farm customers in the Santa Cruz Mountains receiving the letter last week. The area — known for its scenic wooded neighborhoods — has been particularly hard-hit by nonrenewals by State Farm and others. 

A homeowner in Orinda said he had not received the letter as of Wednesday but called his State Farm agent and was told it was in the mail. When he asked how much it would cost, his agent said pricing was not yet set. 

Private market policies that cover risks to homes other than fire are traditionally known as difference in condition policies. Other major insurers such as CSAA, Farmers Insurance Group and Travelers Group also offer difference in conditions policies, according to the Department of Insurance. 

Carmen Balber, executive director of consumer advocacy group Consumer Watchdog, said this was the first time she had heard of a company offering a difference in condition policy to homeowners whose policies they will otherwise not renew. 

“State Farm has not traditionally focused on providing such a wraparound approach to FAIR Plan customers, so this flexibility is a positive development,” said Rex Frazier, president of the Personal Insurance Federation of California, an insurance industry group. 

While the FAIR Plan has traditionally only insured homes in the riskiest parts of the state where there are no other options available, the increasing unavailability of insurance has pushed it to become one of the largest insurers in the state. As of March, 35% of FAIR Plan policies were located in areas not considered to be wildfire-prone, according to a spokesperson. 

“Creating options for homeowners is a top priority for the Department of Insurance,” Soller said in a statement. “A comprehensive policy is the best choice for most homeowners, and the FAIR Plan needs to be a last resort. The Department of Insurance can help you scour the market before you settle for a FAIR Plan policy. The Department authorized State Farm to offer a difference in conditions policy to its nonrenewed policyholders who are unable to find traditional coverage from another company. While many impacted State Farm policyholders may choose to look for traditional coverage with another insurance company, offering a difference in conditions policy at least gives consumers an additional option to consider, depending on their particular need and financial situation.” 

State Farm previously said in a statement that it would not renew homeowners on a rolling basis starting July 3. The spokesperson said interested customers would be able to sign up for the supplementary policy through their State Farm agent at their next renewal date after July 3.