2024 is shaping up to be an even tougher year for property insurance in California. The state's top 12 insurers are pausing or restricting new business, with daily closures from the remaining carriers, even in non-brush risk areas, and as of December 2023, more than 80% of the property insurance market is currently shut down.
On December 13, 2023, California Insurance Commissioner Ricardo Lara announced a Sustainable Insurance Strategy, predicting that the market will be stabilized by early 2025. The plan addresses important changes that, had they been addressed years ago when insurers asked for them, could have stemmed this crisis. Among them:
- Changing to a forward looking catastrophic model to properly address climate change and more accurately rate risks for individual homes.
- Allowing insurance companies to include their increased costs of reinsurance (insurance for insurance companies) when applying for rate increases.
In exchange, insurance companies that participate will be required to increase their offerings in disaster prone areas to at least 85% of their market share elsewhere in California. They will also have to take on policy holders of the FAIR plan, which has seen a record increase of new policies, threatening its solvency. This may lead to seeing premiums weighted more fairly, with those in high risk areas paying more than those who are in low risk areas.
In our opinion, the prior lack of action on the part of the Insurance Commissioner is a large part of why we are in this crisis now. Inflation and climate change necessitated that insurance companies increase premiums to remain solvent, and cover their risks. Most requests for rate increases were delayed and rejected from the beginning of the pandemic until early 2023. Insurance companies have been repeatedly denied the ability to charge rates commensurate with their risk, resulting in this mass exodus. Governor Gavin Newsom forced Lara's hand with an Executive Order issued on September 21, 2023, commanding the Insurance Commissioner to “take prompt regulatory action to strengthen and stabilize California’s marketplace.” But, now, just because the major issues that caused carriers to leave will finally be addressed, doesn't mean they can be forced to come back into the California marketplace.
These long awaited regulations will mean higher prices. Most Californians are still underpaying, according to the article, Home Insurance Bubble, where they cite the top 10 counties in the US overdue for a major correction, and 5 out of 10 were in California, including Contra Costa, Riverside, San Diego, LA and San Bernadino.
In conclusion, while the Commissioner intends to create market stabilization in early 2025 and beyond, we are doubtful it will happen that quickly. What remains to be seen is how many insurance carriers participate in the proposed new regulations. In the meantime, the most important thing is to have is coverage, so make sure you hold onto it if you do, and get into auto pay with a checking account, or at the very least, pay your bill early. If you are in lender pay, confirm your lender paid before the expiration date. If you get a non-renewal, we will do our best to help you obtain new coverage. As always, please Contact Us if we can be of assistance.
You can also refer to some of our past articles here:
California Insurance In Disarray, outlining the growing crisis in property/casualty insurance, and the lack of action by Insurance Commissioner Ricardo Lara.
Capacity Issues Affect All Homeowners, where we outlined the reasons why insurers have left California and/or have limited new business. As of now, in the tail end of 2023