Homeowners Insurance Nonrenewals Due To Overconcentration In East Bay

Homeowners Insurance Nonrenewals Due To Overconcentration In East Bay

| June 07, 2024

The property and casualty insurance industry in California continues to be problematic.  More than 85% of the admitted homeowners market is closed to new business, and a record number of non-renewals have been making national news. Many are familiar with the recent announcement of  State Farm nonrenewing 72,000 policies, mostly in fire prone areas.  We are also seeing a large number of non-renewals due to "density," or "overconcentration" in non-fire prone areas, especially in the East Bay. Until carriers are allowed by the Department of Insurance (DOI) to charge a rate commensurate with the risk, they need to reverse the "overconcentration" in certain areas by reducing the number of homes they insure.  Liberty Mutual admitted their record non-renewals in the East Bay are due to fears of a long overdue big quake along the Hayward fault, which will inevitably cause fires, and homeowners policies would have to cover those fire losses. 

Still other homeowners policies are being nonrenewed because of a specific risk that a home poses, such as an old roof, backyard debris, brush or trees surrounding the property, multiple claims, or an overall lack of property maintenance. 

Many homeowners assume insurance companies are to blame for the insurance crisis. However, if you look at the last several years, the CA Department of Insurance (DOI) has ignored pleas by insurance companies to address multiple concerns, including the ability to charge an appropriate rate for each risk.  State Farm's public statement lists the following concerns, which lead to them pausing new business in 2023, and, their non-renewals of 72,000 property policies in 2024:

  1. Inflation

  2. Catastrophic exposure to risk
  3. Reinsurance costs (insurance for insurance companies)
  4. Outdated insurance regulations.

Governor Newsom pressured Insurance Commissioner Ricardo Lara, and the DOI, to put forth new regulations that go into effect at the end of 2024.  From the list above, the DOI will address items 3 and 4: Allowing insurance companies to figure in their increased reinsurance costs when they file for rate increases, and using more forward looking catastrophic models, rather than using 20 year old data. They will also take into consideration wildfire mitigation measures for individual homes, rather than denying coverage to an entire zip code.

For homeowners facing non-renewal in 2024, any regulatory changes on the horizon will come too late. These new regulations are not likely to bring insurance companies back to the marketplace anytime soon, nor do we think pricing will get more competitive. The DOI will allow rate increases, but in exchange, insurance companies must return to covering homes in high wildfire areas.  For all homeowner policies, there are no guarantees, even if you are in a non-fire area.  Make sure you never miss a payment, and open every letter or email you receive from your carrier.  You may have to comply with updates to your property as a condition of renewal.  If you do get a non-renewal, talk to your agent as soon as possible to find out what alternatives they can offer you. If they can only offer you the FAIR plan and a DIC policy, we recommend you consult with an independent agent, such as Alive Insurance, to provide a quote with a surplus lines carrier.  Please contact us if you have any questions.