Capacity Issues Affect All Property Owners

Capacity Issues Affect All Property Owners

| July 28, 2023

The California property/casualty insurance market continues to deteriorate. Restrictions from carriers continue to roll into our agency daily.  More and more carriers are leaving the state altogether.  Read: Why insurance companies are pulling out of California and Florida

We are already seeing few choices for high brush risk areas. As of this writing, it has become challenging to write new policies in negligible and moderate brush areas. Some carriers are not writing new policies where there is no brush risk at all.  They cite the reason for this as "capacity issues."  Insurance companies can only write so many risks in a particular area.  Once they can no longer do so, they close the area to new business, due to their having maxed out their exposure for risk in that area.  

When carriers ask the CA Department of Insurance (DOI) for rate increases to keep up with increased construction and reinsurance costs and do not get those increases approved, they cannot continue to write more business and stay solvent.  If an insurance company, as some have reported, are paying out $1.20 for every $1.00 of premium they collect, they will not stay in business unless they limit new business. The DOI is not allowing carriers to increase their rates in proportion to inflation and reinsurance costs, claiming that they are protecting the consumer, but it's having the opposite effect.  Homeowners are struggling to find coverage as carriers are forced to restrict new business or stop writing new business, as State Farm, Allstate and many others have already done.   

What does the future hold? If admitted insurance carriers are unable to raise their premiums, they will continue to close markets due to brush and capacity issues, or even exit the state entirely, leaving customers with few and expensive choices, much like what is currently happening in Florida.  If the DOI refuses to work with the insurance companies, the only choice for homeowners will be the FAIR plan.  That is simply not sustainable, and we may eventually see incentives for insurance carriers to return to California.

What else would help? Employing new technology to provide better data on homes, and to have premiums more closely associated with the risk for that particular home. Looking back on 20 years of data for a generic algorithm in a particular area is no longer functional.  We would like to see premium costs based more on the brush and property risk characteristics of an individual home.  DOI rate increase approvals should also factor in the increased cost of reinsurance.  

What does this mean for you? If you are considering buying a home, be prepared to pay more for insurance.  If you already are a homeowner, do not let your policy expire due to non-payment, as it may not be possible to rewrite the policy with the same carrier, or at your current price level.  Make sure you are in autopay, preferably with a checking account. If your lender pays your premium, you need to follow up and make sure the premium is paid before the expiration date. If your policy does expire, or you receive a non-renewal notice, we will help you find new coverage.  As a last resort, we can provide the CA FAIR plan, plus a companion policy to cover what the FAIR plan does not. 

As always, Contact us if you have questions or concerns, and please do take our call when our Renewal Team reaches out to you to review your policy.