The answer to this question is both yes and no. Insurers offering homeowners insurance policies in Arizona are required to base their premiums on their loss experience specific to Arizona. This means that if an insurer pays out extensive claims in another state, they cannot attempt to recoup those losses by passing along rate increases to Arizona policyholders. However, insurers routinely purchase their own insurance in the event of a catastrophic claims payout. This insurance is referred to as "reinsurance" and protects insurers from paying claims that could lead to the insurer becoming insolvent. When covered perils increase, such as the risk of wildfire, the cost of reinsurance also increases for insurers. The cost increases of reinsurance can be passed along to policyholders by the original insurer.

The issue of non-renewal and increased premiums for all types of insurance is not specific to Arizona. Many states are experiencing the same problems as Arizona homeowners. More frequent occurrences of severe weather events, combined with rising home values, and increased construction and labor costs are having a detrimental effect on insurers and consumers alike. Proactive approaches to mitigating risk by consumers, active and careful shopping, and understanding the policy provisions are important steps to take. Additionally, consumers are encouraged to:

• Speak with their agent to understand the types of risks an insurer looks at when determining whether or not to write the risk and what premium they will charge to write the risk.
• Decrease the severity of risk around their home; do everything possible to mitigate risk. Examples include creating defensible space, using fire-resistant materials to build, and mitigating the possibility of flood waters from entering your property. Homeowners may also consider the installation of a leak detector to mitigate the possibility of water damage inside the home.
• Get involved in organizations where they can become informed of wildfire/flood mitigation strategies.
• Be active in shopping and work with their agents to find those insurers willing to provide coverage and then compare those policy costs. It’s also important to remember that cost should not be the sole factor considered as adequacy of coverage and service are also important considerations. View Arizona licensed insurers who may offer coverage in areas of the state at higher risk for wildfire.   
• Beware of unscrupulous workers who show up at their residence uninvited after their home sustains damage, such as from a storm or wildfire. It is not uncommon after a community suffers widespread damage for individuals and companies to show up uninvited with offers to inspect and then fix the damage. These workers are often opportunistic and victimize homeowners and insurance companies through deficient work, costly bills to the insurer, and the possibility of the homeowner being asked to pay costs declined by the insurance company. Prior to engaging with anyone they did not invite, including independent adjusters, consumers should contact their insurer for an inspection of damage and a referral to a licensed contractor both the consumer and the insurer have confidence in.
• Prior to signing any agreement or contract with an individual representing themselves as a contractor or independent adjuster, ensure they are licensed, insured, and have a complaint history you are comfortable with. Contractor licenses can be found at https://roc.az.gov/ and adjuster licenses can be found at https://difi.az.gov/license-search.
• Understand that filing a claim for a loss that is close to the required deductible can result in increased premium at renewal. Filing a claim should be the last consideration as insurance is intended to address damage that cannot otherwise be financially covered out-of-pocket by the consumer (i.e. catastrophic events).
• Work closely with their insurance company or agent to ensure the company is making coverage decisions based on accurate information, ensure adequacy of insurance (not too much, not too little), and consider raising deductibles to lower premium costs. Deductibles (the amount the policyholder must pay out-of-pocket) can change the cost of insurance. 
• Understand the importance of reading and becoming familiar with the coverages included with their policy. As an example, the difference between “actual cash value” and “replacement” coverage of your home can be significant. Learn more about these differences.

If you have concerns regarding your policy and need help or would like to file a complaint, contact our Consumer Services Division at (602) 364-2499 or [email protected] to learn how we can further assist you.  

It is important to understand that DIFI has no statutory authority to set or approve homeowners insurance rates in Arizona. DIFI does have statutory authority and processes in place to monitor rate increases and ensure insurance companies are complying with Arizona insurance laws. 

Insurance consumers are encouraged to pay close attention to the limits of coverage provided in a policy and ensure that they are appropriate – an agent can assist. Consumers are also encouraged to understand how deductibles (the amount the policyholder must pay out-of-pocket) can change the cost of insurance. 

DIFI’s mission is to protect consumers, provide certainty on regulatory matters, and perform with efficiency and integrity as good stewards of taxpayer resources. In furtherance of our mission, DIFI is focusing on:

• Helping consumers manage the severity of risks through public outreach and education. DIFI is committed to helping bridge the gap between insurers and consumers. We believe well-informed consumers can make better decisions regarding their coverage choices within homeowners' policies. Given that the mitigation of risk is so important in the final cost of insurance, DIFI is prioritizing sharing information on mitigation strategies and programs that may save consumers money.
• Encouraging the adoption of mitigation strategies to make communities more resilient to wildfires. DIFI is focusing on reducing risk because it offers a better chance of long-term sustainability of insurance markets in disaster-prone areas. Current mitigation initiatives and programs include addressing fire spread, accessibility, defensible space, water supply, etc. for buildings constructed near wildland-urban interface areas that are susceptible to wildfire.
• Working with insurers to recognize mitigation programs. When communities work together to implement risk mitigation strategies, those efforts may be recognized by insurers as part of the overall strategy to prevent the loss of individual homes in those communities. DIFI is committed to working with insurers to recognize these programs in ways that result in cost-savings to policyholders within those communities.
• Providing resources for homeowners to find coverage. DIFI maintains a list of insurers who have indicated a willingness to provide coverage in areas of the state at higher risk for wildfire. Not all insurers listed will provide coverage in all areas and some may not offer competitive prices, but DIFI will maintain this list of insurers to give consumers and agents leads on finding homeowners coverage. Additionally, those insurers who recognize mitigation efforts will be noted. 
• Encouraging direct consumer-insurer engagement. As changes occur in people’s lives, their insurance needs change as well. Annual insurance reviews, or “check-ups,” are a great way to communicate with your agent or insurance company to ensure existing coverages, deductibles, and limits remain the most appropriate for your specific needs. Learn more about questions to ask your homeowners insurance agent or company. 

If you believe your insurer is making a non-renewal decision that is based on inaccurate or outdated information, DIFI encourages homeowners to contact the insurer to obtain the specific data that was used for the determination and to provide the insurer with the data that you believe is correct.  

Keep in mind that insurers may want to reduce their risk exposure in certain areas based on the perils present and these decisions can result in non-renewal even when mitigation efforts have been undertaken at the property.

If an insurer decides not to renew your policy due to a specific condition related to your home or property, such as having trees and shrubs within 10 feet of your home, they must notify you of the condition and give you an opportunity to remedy it. If you remedy the condition within the specified time (usually 30 days) in a manner that is acceptable to the insurer, the policy must be renewed. If you have not remedied the condition before the policy expiration date but you have paid the renewal premium, the insurer must provide you with an additional 30 days to remedy the condition. 

There are over 100 insurance companies selling homeowners insurance in Arizona. Not all of these insurers will be offering coverage as they may be limiting their risk exposure in certain areas of the state.

Sometimes these terms are used interchangeably by consumers but there is a difference between a cancellation and a non-renewal. 

A cancellation is the termination of a policy by the insurer during the policy period. Insurers are only required to provide 5 days notice when canceling a policy.  Under Arizona insurance laws an insurer can only cancel a policy for the following reasons:

• Non-payment of premium
• Conviction of a crime arising out of acts that increase the risk
• Fraud or misrepresentation in obtaining the policy or filing a claim
• Negligent factors or omissions that increase the hazard insured against
• Substantial change in the risk 
• Failure of the insured to eliminate or reduce conditions of the premises that will increase the probability of future losses

Cancellations of homeowners insurance policies are uncommon in Arizona. However, these and any other reasons may be used to non-renew a policy. 

A non-renewal is the insurer’s decision to not renew a policy for a successive policy period. Non-renewals are much more common and insurers are required to provide at least 30 days’ notice of a non-renewal before the end of the policy period. An insurer may also condition a renewal on reduction of limits or elimination of certain coverages in the policy which also requires at least 30 days’ notice. 

The number of homeowners without homeowners insurance is not data that DIFI collects because there is no requirement for reporting it to our agency.

These are individual decisions that are likely based on an individual’s financial situation. Homeowners who do not purchase homeowners insurance are considered self-insured, meaning that the individual homeowner is financially at risk in the event of a loss, rather than an insurance company. If an individual can’t afford insurance, they likely can’t afford to lose a house, which is possibly the most expensive asset they own. DIFI encourages homeowners to have insurance as it creates resiliency to recover financially from catastrophic loss. 

DIFI staff have participated in emergency resource centers when wildfire or flooding catastrophes occur, and have seen firsthand when homeowners chose not to purchase insurance, suffered a loss, and then regretted the decision

There are no Arizona statutes that require homeowners insurance. However, mortgage lenders generally require homeowners insurance as an assurance that their financial interest is covered in the event of a loss.

Homeowners are the most important factor in reducing risk in Arizona. The reduction of risk is the necessary element to lowering insurance premiums in our state. There are many community mitigation tools and personal mitigation tools to address the wildfire issue. Homeowners are encouraged to become involved in community mitigation organizations such as Firewise USA®, Federal Emergency Management Agency (FEMA) programs, the Federal Alliance for Safe Homes (FLASH), or you can contact your local Fire Department/District to find out about community mitigation efforts in your area and also undertake as many personal mitigation efforts at your property as possible. If every homeowner does their part, the likely result would be significant risk mitigation, increased availability of homeowners insurance, and decreases in the overall cost of insurance. 

Additionally, homeowners should carefully evaluate the benefit of filing claims for losses they could cover themselves, leaving homeowners insurance to cover catastrophic losses. This may be a different thought process than in years past, but a new paradigm is required due to circumstances affecting the cost and availability of homeowners insurance.

The predominant risk in Arizona is wildfire. It's normal to think of wildfire as being in forested areas, but desert areas may offer a significant risk as well. Insurance claims also result from monsoon storms that can bring high winds and hail that may result in damage to a structure. Additionally, water damage claims resulting from plumbing failures have been cited by insurers as causing a significant number of claims. The issue of risk to a property is not confined to a specific area. Insurers use a variety of data to determine risk and then price insurance coverage accordingly. 

While not covered by standard homeowners insurance, there is an increased risk of flooding in areas where a wildfire has burned. Flood is defined as water that enters the home from the outside at ground level and this type of coverage requires a separate policy that must be purchased in addition to homeowners insurance. Learn more about purchasing flood insurance.

The following factors are currently influencing homeowners insurance rates and availability:

• Increases in the cost and volume of claims: It’s a fact that homeowners insurance in Arizona, and across the country, has changed significantly in the past few years. The increased amount of funds paid out per claim  and the increased number of submitted claims has resulted in increases in the cost of insurance and a reduction in the number of insurers willing to provide homeowners policies.
• Increases in construction and labor costs: Increased costs of construction materials and a shortage of skilled tradesmen have driven up construction costs, making it more expensive to rebuild or repair your home if it were damaged or destroyed. 
• Increases in home values: When home values increase, more insurance coverage is required to fully insure the home. Higher coverage amounts equal higher insurance premiums.
• Increases in the severity and number of natural disasters: Arizona has experienced increases in the severity of storms and natural disasters. This means our homes are more frequently exposed to natural disasters and catastrophic events, driving up insurance costs due to increases in the number of claims and severity of losses. Additionally, due to Arizona’s dry climate and expanding development in wildland-urban interfaces (the line, area, or zone where structures and other human development meet or intermingle with undeveloped wildland or vegetative fuels), many locations in Arizona are susceptible to wildfire. Summer monsoon storms also cause damage to homes through high winds and hail.  
• Selected coverage type, limits, and deductibles all contribute to premium cost: Homeowner policies are tailored to meet the coverage needs of individual homeowners. Every homeowner has decision points within a policy where they select coverage amounts and deductibles that all contribute to the final cost of the policy. If you select higher limits for your dwelling, personal property, loss of use, or liability coverage, you will see an increase in premium. This includes your decision to buy a policy that covers actual replacement cost versus receiving the market value of the home should it be lost entirely.

While in general, increases in homeowners insurance premiums are occurring statewide due to some of the conditions above, there is an elevated concern in forested areas and wildland-urban interface areas in Arizona due to the increased probability of a destructive wildfire occurring in these areas.

Yes, umbrella coverage does not meet the definition of “policy of insurance” in A.R.S. § 20-1510

Yes, as long as the insurer is not reducing coverage only for specific breeds of dog, but for the possession of any dog.

Yes, as long as the insurer is not declining only for specific breeds of dog, but for the possession of any dog.

Yes, as long as the insurer can demonstrate the adverse action was not based solely on the breed of the dog and the insurer is in compliance with the applicable cancellation and nonrenewal provisions in A.R.S. §§ 20-1652 through 20-1656.

Yes,  insurers may ask other dog-related questions on the application, but unrelated to the breed of dog, such as bite history, age of dog, number of dogs.

Yes, as long as the rating applies to the mere possession of any/all dogs in the household and does not discriminate by breed whatsoever.  

If a company currently has rating and underwriting factors that result in surcharges, non-renewals, declinations, etc. solely because of dog breeds, the Department would expect to receive a filing revising rates and supplementary rate information (e.g., underwriting guidelines/manuals).  Similarly, if your policy or application forms reference dog breed in a manner that is not consistent with the new law, the Department would expect a form filing.

Yes, a policy exclude a specific dog with a history of biting or aggression, similar to an excluded driver on an auto policy?

Yes, the definition of “breed” in A.R.S. § 20-1510 is “the actual or perceived breed or mixture of breeds of a dog.” 

Insurers may ask about dog breeds on applications, but A.R.S. § 20-1510 precludes the breed of dog from being the “sole factor considered or used for … [q]uestionnaires, surveys or other means of gathering information regarding ownership or possession of a dog or the presence of a dog on the premises insured or to be insured under a policy of insurance.”  Underwriting guidelines must clearly demonstrate that the insurer will not decline, cancel, non-renew, or raise rates based solely on a particular breed of dog.

Yes, a HO policy exclude “Animal Liability” in its entirety for all animals.

Only if the dog breed is not the sole factor determining a rating or underwriting decision, and as long as the elimination of the non-related factors does not result in the dog breed being the sole remaining underwriting factor.

An insurer may impose underwriting criteria related to the possession of any dog, but not based on a specific breed of a dog.  An insurer may impose underwriting criteria unrelated to the breed of the dog. For example, it will insure homes with a dog greater than 40 pounds only if they have a 6-foot fence. 

Yes, insurers will need to make clear statements in their rules, including underwriting manuals, that demonstrate the company will not decline, non-renew, cancel, surcharge, or increase premiums based solely on the breed of dog.

The “policy of insurance” is the entire policy.  Any riders or endorsements to the policy would not be considered separately from the liability coverage under the base policy. 

A.R.S. § 20-1510 states that “the breed of a dog may not be the sole factor considered or used for … [u]nderwriting or actuarial processes for determining risk, liability or actual or potential losses related to claims involving dogs under a policy of insurance.”  Insurers may not use the breed of a dog to make an underwriting decision about what coverage will or will not be included in the policy.  In addition, an insurer’s base rates and/or rating factors may not be developed based on whether the policy includes or excludes coverage for particular breeds of dogs.  However, an insurer may exclude coverage for liabilities arising from possession of any dog, or for reasons not associated with the breed of the dog, such as a history of viciousness or aggression.

The law defines “Policy of Insurance” as “a homeowner's or renter's policy of insurance.”  Thus, it will apply to all types of HO policies: HO1, HO2, HO3, HO4 (renters), HO5, HO6 (condo), HO7 (manufactured home), and HO8.  A policy of insurance does not include commercial, excess, or umbrella policies. 

A3: If rules or policy documents, including applications, reference “breed” they must be consistent with the definition of breed in A.R.S. § 20-1510. 

While not directly applicable to insurer transactions, the newly added definitions in A.R.S. § 11-1025 may be helpful.  Although, because these definitions do not appear in Title 20, policy forms may have definitions for “Aggressive”, “Vicious”, or “Provocation” that differ from those in A.R.S. § 11-1025.
 

The law applies to new and renewing transactions.  The session law in the bill makes clear that the new law applies to both new and renewing policies of insurance:

Sec. 3. Applicability. This act applies to new policies of insurance and renewed policies of insurance issued from and after June 30, 2023.

Furthermore, A.R.S. § 20-1510(A) refers to actions associated with a “policy of insurance” which includes new and renewal actions.  Therefore, an insurer may not decline to write, non-renew, cancel, or price new or renewing policies based solely on the possession of a certain breed of dog on or after that date. 

A.R.S. § 20-1510 takes effect on June 30, 2023.

The AATA assessment will be assessed per vehicle insured during the reporting period.

Example: VIN …9999 is the only vehicle on a policy written in September. That vehicle was replaced with VIN …8888 in December. The AATA would collect $.50 for each vehicle as both vehicles were insured during the collection period.

Yes. Public Entity Excess Retained Limits Liability Insurance. This large risk liability plan sets forth the methodology to be used in the design and pricing of Excess Retained Limits Liability insurance to eligible large public entity risks. The large risk liability plan provides excess liability limits coverage to large public entity insureds who have chosen to self-insure a portion of their liability loss exposures and all or a portion of defense costs.

These coverages include:

• General Liability
• Automobile Liability
• Law Enforcement Liability
• Public Officials & Employment Practices Liability
•  Educators Legal Liability & Employment Practices Liability

Applicable statutes are available online at https://www.azleg.gov/arstitle/ (see primarily Title 20), or through the Department of Insurance and Financial Institutions (DIFI) website at https://difi.az.gov/laws, which is also where to find formal regulation (administrative code), including R20-6-2002 related to certain captive fees. Captive-specific law is located in the sections of A.R.S. 20-1098, et seq and 20- 2401, et seq, though other general insurance law applies in many respects (see 20-1098.15).

A lot of useful information is located on the DIFI website. The two primary web pages specific to the AZ captive program are:

This information is available at the Captive Division Facts and Statistics exhibit link on our website located at difi.az.gov/captive-division and is generally updated every two months.

This exhibit provides publicly-available information about the program. Information associated with AZ captives is subject to confidentiality provisions per A.R.S. 20-1098.23.

The current Captive Insurer Certificate of Authority Application form is located on our website in the Captive Insurer License App section at: difi.az.gov/captive-division

The application is free form and all items should be answered whether applicable or N/A.

If the captive application includes protected cells, the application should include a completed Captive Insurer Protected Cell Supplement Application (a per-cell application fee also applies). That form is also found at the link above.

A.R.S. 20-1098.01(L) provides for a 30-day time frame from receipt of a complete application to a director approval or denial decision. The average decision time frame in recent years has ranged from 35-50 days, though the actual time frame of any particular application can vary significantly from that range. We try to work within the applicant’s desired time frame, and make every reasonable effort to help the applicant complete the application and perform an efficient review to make a recommendation to the Director.

Incomplete applications make the review and licensing process inefficient and cause confusion and delays. Here are some typical issues associated with an incomplete application:

• Application form line items are left blank, do not address the request, or are inconsistent relative to other responses.
• Key aspects of the business plan are not well-developed, e.g. negotiations with key participants are not far along, policy documents or reinsurance terms are not well-established or known.
• Financial statements of the captive’s direct parent or, if applicable, a direct upstream entity, are not provided.
• Corporate governance documents are: not submitted, inconsistent with each other, or incomplete.
• The feasibility study is not submitted, does not support the financial aspects of the business plan, or is otherwise inadequate or incomplete.
• A statement under oath by the President and the Secretary showing the captive’s financial condition is not submitted or is not properly signed.
• The submission includes a set of financial pro forma that do not include an adverse scenario, or do not comport with other information in the business plan, feasibility study, or other exhibits.
• The application fee payment is not made/received.

Once the captive license application is initially approved, there will likely be one or more administrative steps in order to complete the application process and receive a captive license – we will communicate those to you at initial approval. While there may be others, the most common steps for the applicant to complete are to execute a license Conditions Addendum, if any, and to initially fund the captive with at least minimum required capital. Completion of administrative steps is generally expected to occur within 60 days of initial application approval.

Arizona does not release a printed version of the captive license, but instead sends a soft copy to the applicant contact, usually by email attachment. This version is considered the ORIGINAL and should be returned to us if and when it is surrendered for amendment or withdrawal, or for some other reason, usually in the form of a printed copy.

Note: AZ does not license individual protected cells, only the protected cell captive insurer, sometimes referred to as the “Core”.

The license effective date will default to the date the Director formally approves the application. The effective date will NOT be earlier than the Director’s approval date, though we may be amenable to establishing a reasonable later effective date.

There are three primary components to the captive application fee totaling $1,175. All are payable to the Arizona Department of Insurance and Financial Institutions. The components are:

$1000 – new license,

$100 – examiners revolving fund

$75 – charter document fee

Note: There is normally also a $60 fee payable to the Arizona Corporation Commission (not to DIFI) related to the legal entity formation. See the ACCs website for specific information.

The initial application fee represents the license fee for the first year (or partial year) of the captive’s licensing. As an example, a calendar year captive that gets its initial license effective November 1, 2022, will be expected to make its first annual report filings based on the two months of licensing and pay the first annual license renewal fee ($5,500) in connection with those filings by March 31, 2023.

There may be other fees required in some circumstances, most often in one of two categories:

• Protected cells: Additional application fees will apply with applications for protected cells connected to a protected cell captive insurer license. The examiners revolving fund and charter document fees do not apply for each protected cell. The $1,000 fee applies to each new cell to be formed whether at original license application or at a later date. [Fees to ACC will likely apply if the cell is a distinct legal entity, e.g. a corporation or LLC.]
• Additional review fees for specialists, etc.: The Department may need to engage contractors to assist with an application review, particularly if it requires the expertise of a specialist, usually an actuary. These costs will be borne by the applicant. Every effort will be made to communicate the estimated cost of such services before they are incurred. Such fees are most commonly, but not always, associated with applications for new risk retention groups and will be billed separately.

The fee schedule applicable to AZ insurers, including captives, is located on our website at the link below. 

The most common reason to amend a captive license is to add lines of insurance authority. For example, a current license may include authority to write Casualty without Workers Compensation insurance. The captive requests and receives DIFI approval for a business plan change to add Property or Surety or some other coverage, contingent on adding that authority to its license.

To amend the license, the insurer should complete and submit to us the Application for Certificate of Authority Captive Lines of Business Change form by email attachment or mail, along with the current printed original Certificate of Authority being replaced. If the original license cannot be located, a completed and signed Affidavit of Lost Certificate of Authority should be sent instead. A check for $200 payable to DIFI is due as well that includes a cover letter indicating the purpose of the check. If you cannot locate the relevant forms on our website, we can provide them to you.

See the relevant section (section 5 or 6) in the Reference Guides on our website.

See the Captive Insurer Reference Guides and the DIFI and/or NAIC website for more information about RRG and non-RRG requirements and due dates.