The big question on homeowner's minds: When will the property insurance market stabilize? The future of the market depends on decisions that are being made right now.
How did we get here?
Most insurers in California have pulled back or stopped writing homeowner business altogether. They cite wildfires, climate change, inflation, and rising reinsurance costs as key factors in their decision. 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. Most requests to the Department of Insurance (DOI) 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.
What's happening now?
85% of the admitted market is closed, and many homeowners have been nonrenewed. This has put enormous pressure on the FAIR plan, the state run insurance of last resort, and The FAIR plan recently admitted that they are one major catastrophe away from insolvency.
The largest insurer in California, State Farm General Insurance Co, has 21% of the property insurance market, so any decision they make will have a large ripple effect. In alarming news, they were recently downgraded to a financial rating of B by AM Best. State Farm General Insurance Co asked the Department of Insurance (DOI) in June for a 30% rate increase. If that's not approved, they will have solvency issues. This could potentially mean more or even all of their homeowner policies being nonrenewed. We are hoping their rate increase is approved, as we want to see stabilization of this chaotic and fragile market.
What will it take to stabilize the property insurance market?
Allowing insurers to increase premiums enough so they can remain solvent and cover their risks. The DOI recently granted Allstate a 30% rate increase, not enough for them to start writing new business in California, but it's the kind of action from the Department of Insurance that could lead to eventual stabilization in the market. But, it's not as simple as getting the rate.
What has the Department of Insurance proposed?
New regulations that offer a bargain insurance companies may not be willing to take. 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, starting on January 1, 2025, insurance companies that choose to 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. We are doubtful that insurance companies will agree to this exchange, without the necessary rate increases that match such risk.
Make no mistake, stabilization of the market will not bring lower pricing. 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.
While we await decisions by the DOI for rate increase requests, and, the insurers, as they consider whether or not they will participate in these new regulations, what can you do?
If you have a policy now, don't ever miss a payment, and don't file a claim unless it's something big. It may be hard to find insurance with a new carrier if you have a claim on your record.
If you're concerned that you may get a nonrenewal in the future, make sure your home is up to date, in good condition, and that the four systems of your home are up to code or recently replaced: Roof, Electrical, Plumbing, HVAC/Furnace.
If you are nonrenewed, the best solution if you cannot find a policy with an admitted carrier, is, if you qualify, to obtain coverage from a non-admitted, or surplus lines carrier. This is a more stable option than the FAIR plan. Alive Insurance has several options with financially A rated surplus lines carriers. Click here to learn about The Difference Between Admitted and Non-admitted, aka Surplus Lines Insurance Companies.
As always, please Contact Us if we can be of assistance.
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