Why Some Real Estate Deals Look Uninsurable and How Investors Can Still Get Coverage

Robert Feldman (00:00)
Well, basically, it’s not a question of if everyone out there listening is going to fire their heart in their houses, even in areas that are perfect street areas, like there are not a fire zones. These are area insurance companies are, for lack of a better term done. They’re done taking chances. They’re done losing money. So what I have been talking to many different different groups, including investor groups, I talked to constantly about this is an investment to help you going forward.

Dylan Silver (01:59)
Hey folks, welcome back to the show. Today’s guest, Robert Feldman, is an insurance professional with 25 years of experience. He specializes in fire zones and hard to place risks, helping homeowners and investors secure insurance for properties that are often considered uninsurable. He’s a founder of Wow’s Insurance Services, focused on delivering solutions for properties across California and the Western United States that struggle to obtain coverage. He also works closely with realtors and investors

educating them on how to navigate increasingly complex insurance challenges. Robert, thanks for taking the time today.

Robert Feldman (02:35)
Absolutely. Thank you for having me.

Dylan Silver (02:37)
Now, a lot of investors are running into deals that seemingly can’t get insured. What’s actually happening that’s causing this?

Robert Feldman (02:47)
Got it. So right now, what has happened in the insurance market for the Western United States, I would say the fire areas of the Western United States, California is just one of, you know, you’ve got Nevada, Arizona, Washington, Oregon, Colorado, Utah, just to name a few of the states that are running into problems with regard to insurance and fire zones. What has caused the issue really is really two major points that has really caused the insurance industry to be kind of getting a little sideways. One is aggregation issues.

Aggregation means too many risks in one given area. So you have, it’s old famous line, many eggs in one basket. So when the basket splits, you got a problem. Okay, everything hits the ground. So obviously, one of the things we have been very successful doing with our own programs, also with the ones we wholesale through, because we are a wholesaler. We have over 4,000 insurance brokers that are appointed with us, and we directly or indirectly through associations.

We help insurance brokers be able to get their clients insurance through us, through our home insurance programs. Aggregation was one of the key things that was causing problems. So programs that we’ve launched with Lloyds, Lloyds of London and other carriers is really based on separation of risk or spreading the risk was not aggregated in one area, heavy aggregation. The other part is a little bit more of a challenging thing and California is starting to do it, but you’re gonna see a lot of states have to do this.

It’s really about fire hardening. Fire hardening, for those that don’t know what that is out there, is really making your house non-combustible. Now that sounds pretty straightforward, Dylan, right? People think every house is non-combustible. Well, they’re not. There’s a lot of things that you should have at yours and be able to update, is basically, the first of all, we talk about zero to five feet, or what’s called lean, clean, and green. These are closing your vents and…

Closing out things, these are all things that you can find, like an example on Cal Fire’s website. There was an interesting study that by simply doing three major fire hardening things, clearing out your zero to five feet with non-combustible vegetation, closing your vents, attic vents and things in nature with mesh, 16th inch mesh to keep out ambers, and closing out your…

your eaves that overhang your house to make sure they’re cemented or boxed in, you are 73 % more likely to survive a fire, a catastrophe fire, okay? These are just basic things. It’s the reason why our programs for a while has had a 4 % loss ratio in the Palisades fire. We actually didn’t lose a house in the Palisades fire. It’s just based on the fire hardening of houses. So it doesn’t mean that every house survives it.

Dylan Silver (05:16)
Wow.

with.

Robert Feldman (05:36)
But it means that you can exponentially increase the odds of it not having a fire issue.

Dylan Silver (06:29)
Now, I’m imagining, you you mentioned surviving the Palisades fire. There was still some level of damage to these homes. Were they livable after the Palisades fire? What was the condition of these homes?

Robert Feldman (06:42)
Usually what happens is most of the homes that are surviving are gonna be dealing with smoke damage or smoke damage related claims where you’re gonna be helping them, you know, really get their house put back together because of the smoke. Usually it’s cleaning of the house, the interior, exterior, things of that nature, but still a lot better than losing your home. Dylan, God forbid, I’m just gonna say this, you know, if you and I are out having a great dinner hanging out, talking about this very subject, and God forbid your house burns the ground.

you are wearing what you own. You don’t even have another pair of shoes. You don’t have a plate to use or a fork to eat with. You don’t have a pillow to put your head on and you have no place to stay tonight. So you’re gonna, I so let’s just think about all the, it’s really traumatic for consumers across the board when they lose their homes. So the idea of the industry changes really one, spreading to the risks as I mentioned to you and two, making for darn sure that you get these situations in place where you make the homes

harder to burn, which is called fire hardening.

Dylan Silver (07:43)
Now, when you fire harden the home, does that open up which insurance companies will work with that home or is this still an evolving emerging market?

Robert Feldman (07:54)
It actually, we have six different programs that will look at things based on, just purely based on the fire hardening. So a lot of ones that were marginal or that’s just a questionable to write, you know, with an insurance company, if the house was properly mitigated with fire hardening, they might take. We recently over the last couple months actually just were appointed, there’s a thing called the California Fair Plan, That’s a policy of last resort. A lot of you listening to this podcast right now,

probably if you’re in California are probably dealing with the issues of either being canceled or being on the California Fair Plan and we should know that we’re actually part of what’s called the clearinghouse. So we’re working with insurance brokers across California with our carriers to start to depopulate or remove people off Cal Fair Plan that shouldn’t necessarily be on it and it’s a lot of again based on aggregation and it’s again based on fire hardening but we’re very successful in doing so.

Dylan Silver (08:53)
How should investors approach rising premiums, deal profitability, and where insurance falls in there? And then thinking about fire hardening their homes, seems like another added cost. How can they juggle these different costs?

Robert Feldman (09:11)
Well, basically, it’s not a question of if everyone out there listening is going to fire their heart in their houses, even in areas that are perfect street areas, like there are not a fire zones. These are area insurance companies are, for lack of a better term done. They’re done taking chances. They’re done losing money. So what I have been talking to many different different groups, including investor groups, I talked to constantly about this is an investment to help you going forward.

One, if you can’t get insurance or if your insurance goes up, 4X, 5X, doing it once the insurance goes up isn’t the solution. You’re gonna be caught in the mix. Because a lot of these are not simple fixes. Some of these take time and insurance companies won’t buy insurance. So being proactive in fire hardening your house or your rental properties is very important. It’s very crucial to get those things done.

Dylan Silver (10:04)
I want to pivot here, ⁓ Robert, and ask you about the wholesale space. When you’re providers, carriers into these markets, what’s that conversation like? Is it very much based off of the market and the home itself? Is it a little bit based off, you know, their relationship with you and previous deals? What’s this look like?

Robert Feldman (10:59)
Well, really, first and foremost, it’s obviously why we’re having a lot of the Lloyds and I guess which is the reinsurance companies that are setting. We secure over 100 billion of capacity to write in 13 Western states. We write up to $50 million per house now. So we can write the largest, largest houses. Now, obviously, there’s for a lot of, those are the one-offs. We write a lot of 3,000, 2,000, 4,000 square foot homes through our different programs.

Dylan Silver (11:17)
Huge help.

Robert Feldman (11:27)
Really why we’re getting a lot of support and why we keep getting additional programs or how we wholesale through a lot of different insurance companies is just purely based on the fire hardening. Meaning being able to show what we’re doing, how we’re spreading risk, how we’re doing these things to help aggressively mitigate the costs. Dylan, if you think about something for a second, you can take that, I’ve proved this in the past, I’ve been a speaker for Kotality, is a company called, was originally CoreLogic. They’re the largest in the fire, like,

Actuarial space, basically, is what I would argue. They have fire reports and things of that nature. What I was able to prove with them is if you could take the worst of worst areas, but if you take 2,000 different areas and you put one house in each of those 2,000 different areas in 13 western states, you could have a $10 billion exposure, but be profitable. And the reason why it’s the highest of high fire zones,

if they’re properly fire hardened and there’s never more than one home in a loss, you can price in a way to keep yourself very profitable and help reduce premium over time versus trying to write in one area where people were writing 20 homes in one area. Well, then you put all your eggs in one basket. People don’t realize that when you have one plus one doesn’t equal two when you’re looking at how capacity and how aggregation works when it comes to insurance.

One plus one equals three or a half, maybe four. And two plus one equals seven or eight. Where if you have the spread of risk, it can help drive down costs of insurance just based on spread of risk.

Dylan Silver (13:07)
Now, when you’re working with other investors specifically, and I would say single family, people looking for their homestead as well, are they aware of how important fire hardening is? Is this something that is on the tip of their tongue for everyone who’s looking at their forever home or an investment property?

Robert Feldman (13:27)
A lot of it depends on where. Again, if you’re in the middle of a more rural area, you’re gonna be much more in tune with it. If you’re in the middle of downtown LA, Los Angeles, you’re probably less inclined to know more about that kind of stuff. It just really depends on the risks. I get a ton of questions being a speaker for the California Association of Realtors. Realtors are constantly asking me questions about fire hardening.

California Association now makes that part of what their contracts are. So when they’re going into escrow, the state of California continues to pass laws to basically work with consumers on the transaction level. I really do think over time, not just California, but in multiple Western states, fire hardened is gonna be a term that everyone’s learning about now that five years from now will be just standard.

It won’t even be qualifier hardening, it’ll just be what’s required to close.

Dylan Silver (14:24)
So currently for ground up construction for new builds, are new builds in California required to be fire hardened?

Robert Feldman (14:30)
Yes, completely. So they’re completely.

And what happens is they pass laws already to require everybody to be fire-hardened, to not have eucalyptus, palm, and cypress trees within 30 feet of your house and all these things. But what happens is it slowly rolls out. And I know, I give testimony at the state of California level with the state assembly that are passing these laws. And what happens is I kind of get the opinion dealing, they’re gonna let us, the insurance people, be the bad guys.

Meaning is, know, obviously it’s a lot easier for insurance companies to enforce these rules. Meaning if as they continue to pass them, then it is for state of California to really, as an example, go out and go after aggressively to try to force or change these things. This is a collective effort, by the way, Dylan. When a house goes down in an area, the heat, the radiant heat of that house can knock out additional houses. So why having the house fire harden? Why are…

Well, because you’re talking about really a community approach. It’s a domino effect when houses start to go down. So if you have a house that’s really aggressively fire hardening themselves to resist against it being taken out on fire, that could save five or 10 or 15 other homes. It’s breaking the domino effect.

Dylan Silver (16:29)
How prevalent are HOAs? This is a little bit of a different question. How prevalent are HOAs in this conversation? If a home is in an HOA,

Robert Feldman (16:33)
No, told you.

Humongous,

humongous problem, humongous problem. HOAs, actually California did step in with the California fair plan last year, towards the middle part of last year, where they moved up the total coverage for HOAs, because HOAs were probably at the hardest in California. The market kind of fell out, the bottom fell out of the market for insurance, there was a lot of non-renewals, and you were seeing, like there was one HOA that was in Westlake Village, California, where it’s 101 units.

They had $55 million of coverage, okay? Farmers was the insurance company, non-renewed, done at 85,000. So they canceled the policy, 85,000. The best to be insured to value through the reinsurance market, it was over 600,000. They went from 80,000 to 600,000. So the California Fair Plan recently stepped back in. They were able to cut their rate in half.

which was a good thing and there’s still a lot of challenges, still not where it was at 85,000, but it’s getting better. So there’s a lot of different angles for solutions.

Dylan Silver (17:45)
I’d like to pivot here, Robert, and ask you about some other areas of the country. I’m talking to you from Texas here today. across so many different states, people are seeing maybe deals on paper, but then when they’re looking at the cost of insurance, they’re realizing, well, that’s going to skew our numbers here for sure. When people are seeing rising insurance costs that are potentially deal killers, is there anything that they can do in these situations?

Robert Feldman (18:03)
Absolutely.

Well, what happens is actually, it really depends again. We’re seeing a lot, there’s a 400, to your point, a 400 % variance to market on a lot of properties. We’re seeing houses that we will write on larger ones that are 10, 20,000 that people were getting quotes for 80, 100 to 100,000. So it just depends on really the market. Again, fire hardening is a big part of this, but you are 100 % correct, Dylan, when you look at this.

There’s three parts, everyone understands this, whether it’s an investment or for their own single family home to buy. You’ve got three parts to it. You have a mortgage. Well, if you have a fixed rate, fixed mortgage, you know what that cost is gonna be every month, okay? Property taxes, well, that’s pretty fixed also. mean, you can really fix, you know what that fixed number is with property taxes. So it’s slight modifications due to Prop 13 in California and it depends on every state you’re in. The one that’s the true wild card really is the insurance.

So insurance, especially on investment properties, can go sideways really quickly where you can be profitable with a return that gets completely eaten up and then some just based on insurance. again, why we’re seeing a lot of people doing the fire hardening and getting, is to really try to take advantage of as many options as possible to bring as many potential carriers as possible. And that’s what we look at.

Dylan Silver (19:33)
Do you see any movement away from the typical construction materials that we’ve seen for so long across the states? know, stick-built homes, I think, is everywhere. But as we’re seeing issues with flood and with fire, are there movements to other construction materials?

Robert Feldman (19:50)
Absolutely.

Absolutely. And it’s one of the greatest things about us as an economy is obviously when there’s there’s tragedy, there are always people that are doing creative new things to potentially stop fires from happening or changing how building is done. There’s a lot of building codes that have been passed to simply just change certain things. Like, for example, you won’t see, you know, there’s a lot of things like open exposed Eves is not even a possibility any longer or a wood shake roof.

is not even a possibility any longer, because it’s based on upgrading the codes and things that are required in fire zones. But you are seeing a lot of different things still going through. We keep building, California builds, like every other state. And as you build into fire areas and fire zones, and as you build in, believe it not, you’re helping part some homes. Because if think about it, if a house is built in a circle here, right?

And there’s, on the outside, there’s risks, fire risks or vegetation risks. Well, as you build wider, basically all you did was make the ones in the center more defensible. You’re pushing the fire zones further out. So that’s one advantage of it. But at the same time, it’s making sure, you know, we build smart. Really what’s still destroying California is the vegetation. It’s just the vegetation that we plant, is there.

I’ll be up at the end of this month in April. I will be giving testimony. One of the things I will be arguing for Fusilis, there’s three trees that should be banned in California. Eucalyptus, palm, and cypress trees. They should be banned in California. They should be required to be removed in California based on tragedies. There are a lot of great other trees that are available that are non-combustible. You can write a cypress tree up or a eucalyptus tree in the middle of a rainstorm. You can go out there with a plumber’s torch.

in the middle of a rainstorm and light it on fire. Okay? That tree should not be, and by the way, it’s not native to California. ⁓ It’s not. So eucalyptus, cypress trees are not native to California. Palm trees aren’t native to California. They were brought here for the Hollywood things. So my argument is we did this to ourselves. These are things that should be eliminated. And there’s a lot of other great options from vegetation things that can make homes non-combustible, like beautiful homes.

Dylan Silver (21:50)
It’s not.

That’s right.

Robert Feldman (22:11)
And there’s all kinds of examples out there you can see.

Dylan Silver (22:14)
We are coming up on time here, Robert, any new projects that you’re working on and then as well, what’s the best way for folks to reach out to your team?

Robert Feldman (22:21)
Absolutely, you know, we are a wholesaler. we always want to help guide everyone get to get brokers. They’re always welcome. It’s real simple. You can visit our website, wowsinsurance.com W-O-W-S, insurance.com. My email is real simple, [email protected]. We are just here to try to help people get the right places. After the Palisades fire, I must have helped some of my current team and I probably helped some more three to 500 families that weren’t even.

with us, just get to the right places. Now, the funny thing is a lot of those families through different brokers came to us to write insurance policies because we were really able to help them. But it’s the key thing is having knowledgeable people, having the industry and really affecting change. Einstein’s theory of insanity is not a good thing doing. Doing the same things over and over again, expecting a different result doesn’t work.