For Patty, big homeowner insurance rate hikes are old news. She lives in a two-story townhouse at Laguna Village in Laguna Hills. It’s one of 914 units that share walls and have a Homeowners Association. People from all walks of life live there, from blue collar workers to immigrants and retirees on fixed incomes, professionals, and first-time buyers. Patty’s lived there for 29 years but her complex started dealing with big home insurance rate hikes two years ago.

“Nobody even talked about it on the news then, not until it started affecting your average homeowner,” said Patty. “Now everybody’s rate is up. There are some multi-million-dollar homes near where I live that had none of this happening.  All of a sudden, this last year the rate hikes hit them too. They’re upset but at least they have insurance.”

Wilderness areas are directly behind about half of Patty’s community and it’s a beautiful place to live with three to four townhomes making up each building. The condos have up to three bedrooms and two to three baths and they don’t build complexes like this anymore, Patty said. It was an affordable place when she first bought it. For years, the insurance policy for the building complex was worth up to $251 million. The premium was folded into the HOA dues and Patty didn’t know the insurer’s name.

“We never even knew what portion of our dues went to insurance,” she said. When I moved in, dues were $125 a month and now they are at $490 a month, going up $70 a month in the last year.  We are fearful it will go up again,  and we have already had an assessment. We’re  hoping we won’t have another as maintenance has been deferred in our neighborhood because of this large insurance bill.”

At the end of 2022, the complex’s insurance agent told the HOA that Laguna Village’s townhouses could only be covered for a total of $5 million with a $100,000 deductible per occurrence. This was based on an Orange County Fire Authority’s map provided by the HOA to homeowners showing the Laguna and Irvine Wilderness areas right behind the community as high risk “ember zones.” 

The agent gave a PowerPoint presentation with graphs, trends, and fire agency maps showing all the areas behind the property in red. The audience was astounded.

“We were all in disbelief,” said Patty. “We were graded the highest wildfire risk, even though we had never had a catastrophic event with fire that took out any building or single unit in our neighborhood. But everybody was asking we have never had fires, how is this possible? 

Nobody will take into consideration our history—no catastrophic fires, no entire buildings burnt down, just the occasional kitchen fire. No fire in the greenspace behind our condos. As a precaution, the HOA cut down several trees on the property, but that didn’t buy them any discount, the insurer raised the rates anyway.

“You don’t insure on what you think might happen. Don’t you typically use data from the past? That is how car insurance works. I have an accident, yeah, I am going to pay more. But if I have a great record, I get a discount and with this insurance, I am not getting it.”

In December 2022, the HOA sent Insurance Commissioner Ricardo Lara a letter.

“We need your help,” the letter said. “Insurance companies are gouging homeowners’ associations across the state of California by increasing insurance rates at such an exponentially unjust rate that it shocks the conscience.

“Using our community as an example, in the fiscal year of 2021-2022, our association paid $301,022 for $251 million in property loss coverage. Disturbingly, for this year, we are forced to pay $882,787 for only $5 million in coverage—leaving us critically underinsured. To put this unconscionable rate hike into context, if we were able to obtain the same amount of coverage as we had in 2021-2022, at these new rate prices, then we would need to pay $44,315,807 per ear. This is a rate increase of 14,721% in just one year.

“Allowing insurance companies to gouge homeowners’ associations will continue to escalate the harsh reality of California: only the wealthy can afford to own a home here….If our community of 914 units wished to be covered again, then each homeowner would need to pay a yearly bill of $48,485.56. This premium would amount to 51% of the median household income for our county. It is unthinkable to ask anyone to pay 51% of a household’s income to pay for proper insurance.”

No help has been forthcoming. “The HOA is handcuffed, it’s all they could get,” said Patty. “We don’t have enough fire insurance, and what we do have is grossly inadequate for the size of our community. We have no earthquake or flood insurance.” 

The amount of insurance the HOA had previously satisfied mortgage requirements so selling and buying of condos proceeded normally, according to an HOA overview on insurance issues sent to residents such as Patty in March 2023. 

But inadequate wildfire insurance coverage means lenders are refusing to lend money to buy townhouses. “People that would like to buy are running into problems because no one will lend them the money,” the memo said. “That leaves only cash buyers. Cash purchases are always far below market value. You lose money—big time. And. Cash buyers are absentee landlords. We lose money and gain renters.” The problem also works the other way with the lack of insurance making it very hard to sell townhouses, said Patty.  

The property is insured via a patchwork of different policies. For the 2023-2024 period, the HOA has $5 million worth of property coverage with North American Capacity Insurance. Atain Specialty Insurance sold them a commercial general liability policy for $1 million per occurrence, $2 million in aggregate. There are separate policies covering crime, and umbrella liability, all of it for paltry amounts.

The HOA proposed to drop blanket property coverage and to have residents individually switch to HO6 insurance that covers their condos separately from blanket insurance covering hallways and other shared spaces.  

“They want us to take the insurance on ourselves, but it needs to be voted on by the homeowners and so far, they only got 40% of residents to vote, so they don’t have a majority of yes votes,” said Patty. “It would be astronomical for each of us to have our own insurance. We are not wealthy.” Separately, the HOA recommended that residents set their policy loss assessment coverage amounts to $50,000 each. This coverage applies to costs shared by the condo association that are not covered by its insurance policy. Patty pays $720 a year for that coverage.

The increased insurance costs are hard to bear. First, the pandemic cost Patty a business recruiting managers and chefs for restaurants and now she took a step down on pay working for a nonprofit aligned with that industry. “Things are a lot tighter,” she said. “A lot of people are going to just leave California.”

According to Patty, the community is deteriorating and she blames insurers.  Fifteen residents have termite damage to their balconies, including Patty’s, and there is no money to fix them.  

“It feels like we are being made to pay back losses to insurance companies for fires that happened elsewhere with these exorbitant rates,” she said. “This feels very discriminatory.  We are hardworking, middleclass people who value the homes we have invested in. What gives the insurance companies the right to devalue or take away our homes by deeming them uninsurable at reasonable rates?”