Back in June of this year, we wrote a blog entitled California Insurance In Disarray, outlining the growing crisis in property/casualty insurance, and the lack of action by Insurance Commissioner Ricardo Lara. In a later article in July, Capacity Issues Affect All Homeowners, we outlined the reasons why insurers have left California and/or have limited new business. As of now, in the tail end of 2023, 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 more than 70% of the property insurance market is shut down.
Legislative leaders attempted to address the ongoing crisis, but negotiations broke down at the end of the Legislative session on September 14, 2023, which will not resume again until January 2024. On September 21, 2023, Governor Gavin Newsom signed an Executive Order aimed at strengthening the property insurance market, and commanding the Insurance Commissioner to “take prompt regulatory action to strengthen and stabilize California’s marketplace.”
Following this order, the Insurance Commissioner announced that he has an agreement in place with insurance companies to incentivize them to return to and/or expand their offerings in the California market. In exchange for the ability to file for rate increases which will include, for the first time, their increased cost of reinsurance, insurance companies 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. Insurance companies will also be required to use something we've been recommending for quite some time, that they use forward looking catastrophic models to set rates. 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.
Will these new regulations make a difference? That depends on whether the insurance carriers opt into these regulations, and it is certainly no guarantee that insurers who have left the state will return. If the new rules for forward looking catastrophic models go into effect, it won't be until December 2024, and there is no set timeline on adding "reinsurance" costs (insurance for insurance companies) as factors for rate increase requests, perhaps the biggest incentive carriers will need to return to the California market. Reinsurance costs are already built into rate increases for other states, so it's not a big unknown, and it is our hope that it will be implemented soon, as it is a major factor in insurance company closures.
Whether or not these changes take place, and no matter how long they take if they do, you can expect costs to continue to increase, The Insurance Journal recently wrote about the US Home Insurance Bubble, citing 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. According to this article, "Until now, state regulations that cap increases in insurance premiums and subsidized insurer-of-last-resort programs (FAIR plan) have hidden the magnitude of the problem. But as the number of disasters and the related damages keep rising, they predict, the insurance market will undergo a major adjustment and rates will surge, popping what the nonprofit calls a climate insurance bubble." There is no doubt that will be also be the case with the FAIR plan, as outlined in this article: FAIR Plan Gets 1,000 Applications a Day.
In conclusion, we cannot predict what will happen, but we can certainly say that the issue is complex, and more negotiations may be on the horizon. In the meantime, the most important thing 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.