California is known for its picturesque landscapes and laid-back lifestyle. Unfortunately, it is also known for its natural disasters residents must contend with in choosing to live in such an amazing location. 

But, there is a new sort of disaster threatening California today – difficulty insuring the pricey homes in the state. The impact of the difficulty in insuring homes on Californians and the state’s economy is causing residents anxiety and economic hardship. In the face of such a crisis, what are Certified Financial Planners (CFPs) doing to provide guidance for their clients? What can they do?

Over the past decade, as wildfires have increased in ferocity and frequency, insurance companies have been leaving the state. Since 2022, the top 12 insurance companies in California have paused or restricted business according to the state’s Department of Insurance. In March 2024, State Farm announced another 72,000 policy owners would not be renewed. Initially, it was only people who lived in fire prone areas. But now, it is beginning to reach into areas people never would have suspected would be considered “fire prone.” The number of people forced to turn to the state’s CA FAIR Plan program of last resort has doubled over the past 12 months.

To make matters worse, even if a homeowner is able to obtain insurance, recent studies paint a bleak picture: a staggering 65% of Californians are underinsured1. Meaning, if they did lose their home to a fire, they would not have enough insurance coverage to rebuild what they lost. 

Insurance coverage and estate plans, a unique solution

CFP’s have an opportunity to help their clients in times of need, and history bears this out. In 2009, multiple studies showed that the advisors who were in constant communication with their clients throughout the 2008 financial crisis were able to attract referrals from the advisors who had stuck their head in the sand or disappeared, right when their clients needed them most.

Times of crisis are not only an opportunity for a CFP to differentiate themselves and grow their practices, it may be a duty. The CFP Board’s “Practice Standards”include gathering quantitative information from their clients, including insurance coverage and estate plans2 and use that information to assess financial circumstances. Are CFPs helping clients understand confusing and difficult insurance choices right now? Those that are helping their clients understand their choices are adhering to the Practice Standards and are poised to increase client satisfaction. This will lead to sticker clients and numerous referrals.  

What can a CFP do to help clients right now?

Clients choose to work with CFPs because they expect more than only investment management. They want comprehensive financial planning. When thinking about this insurance crisis, there are two areas in which CFPs can help their clients – insurance and estate planning.

How is an insurance issue an estate planning issue, also? Securing a client’s real estate holdings against risk is protecting one of their estate’s largest assets. And that means protecting their legacy. How much they will leave to their chosen beneficiaries.

With regard to homeowners insurance, a CFP can help clients determine how much insurance is needed to rebuild a home from the ashes. Contact high-end builders in your area and learn the approximate build rate so you can come up with per-square-foot build prices for the types of homes your clients own. 

Also, encourage clients to obtain a “Replacement Cost Estimate” from a licensed builder. Their insurance company is unlikely to provide proper guidance on the rebuild cost of the home. But, as a CFP, you can bridge this divide for your clients by helping them understand their home rebuild costs so they can advocate for themselves and get fully covered. Consider this – if a client is insured for $800k but their home will actually cost $1.5million to rebuild, a CFP can help the client close a $700k gap in coverage. Is there anything else you can do to save your clients $700k this year? 

Are all CFPs equipped to handle the intricacies of homeowners insurance on their own? 

Probably not. However, CFPs who recognize the limitations of their expertise create another opportunity to grow their network. By seeking an independent insurance broker who specializes in navigating the complexities of the insurance landscape to partner with, the CPF can expand their knowledge base and network. That makes two new connections and possible referral sources for the CFP – high-end builders and insurance brokers. And, you’ve helped mitigate existing risk exposure in your client’s financial circumstances.

“We are not going to be renewing your insurance” – a notice nobody wants to get.

When faced with a non-renewal notice from their insurance provider, that same independent insurance broker can also help guide the client through the tumultuous process of gaining coverage through the CA FAIR Plan. The anxiety a homeowner experiences when facing a lapse in coverage on their most valuable asset cannot be understated. So if a CFP can ensure that their clients are not left unprotected, chances are high that the client they helped will have neighbors who are also receiving non-renewal notices and need help. Be sure to let your clients know you can help their neighbors, too.

What about estate plans?
While taking the time and making the effort to guide clients through the difficult insurance situation, why not show clients how to also secure their estate by registering their trust, in case there are issues (such as losing everything in a wildfire, the drafting attorney retires/died, etc.), so there is always a complete and authenticated record available?

Californians who own homes often have an estate plan anchored by a trust with their home titled to the trust. But as climate and economic circumstances have upended the insurance market, post-death litigation is upending carefully constructed trusts. This is due, in part, to the fact that despite the digitization of most aspects of our lives, legal records remain on paper. Paper records are susceptible to fraud, forgery, loss, and, according to one major California RIA, leaves nearly 50% of his client families in some kind of costly and family-damaging litigation after death. 

More often than not, it is a CFP who advises a client to confer with a trust and estate attorney to have an estate plan crafted and implemented. However, it is the storage security of those documents, or lack thereof, that leaves a gaping hole in carefully laid plans. If the document – the trust – controlling management and distribution of your most valuable asset – your home – is not registered, any fire, flood, theft, forgery, or litigation, can wreak havoc on the plan you set in place.  

This is another area of opportunity to help your clients. It is a chance to solidify estate plans while creating a more productive relationship with trust and estate attorneys. So while working with clients to cover their insurance needs, CFPs can team up with the client’s trust and estate attorney to bring their trust into the 21st century as well. 

So, if not the CFPs, then who? 

In a time of crisis, when the foundations of financial security are shaken, people look to their CFPs for guidance and reassurance. It is incumbent upon CFPs to rise to the occasion by educating themselves on the nuances of homeowners insurance, the risks of important legal documents remaining on paper, and arm their clients with the knowledge they need to weather these converging storms. With collaboration and commitment, the CFP who will help clients navigate these difficult times will increase customer satisfaction, reputation, and referrals.

If you want to learn more about protecting your clients’ trust’s, check out DARCiRegistry.com for more information and how it will benefit your clients and your business. 

1. Underinsurance in California
2. CFP Practice Standards Sec. C. 1. A. ii. – Examples of quantitative or objective information include … insurance coverage, estate plans… and capacity for risk.