California Insurance Market – In Chaos

As California homeowners are seeing their insurance policies getting non-renewed by insurance carriers, and for those who aren’t getting non-renewed, seeing huge rate hikes, the option of last resort is even worse. Why is the California Insurance Market in chaos?

Many argue rightfully-so that the state regulator should’ve seen this issue coming many years ago and took no action to remediate the serious pending problem.  For years, insurance companies have been sending in annual rate reviews and regulation updates but have complained that the approval process takes many months, after which, the Department of Insurance comes back with more questions to further the delay.

Yes, it is the responsibility of the Department of Insurance (in each state) to regulate the industry by making sure that insurance carriers are abiding by the rules and able to continue to do business in a safely regulated market where they can both profit and assist homeowners to protect their homes.

On the other hand, it is also the regulator’s responsibility to make sure that consumers have an agency where they can go for assistance should they feel that an insurance company had not followed their contractual obligations. The regulator is a very crucial mechanism to the California Insurance Market.

In a climate of historic inflation, increased crime, increase in fraudulent claims and legal intervention to exasperate the situation, most insurance carriers have made a last-ditch effort of survival by at least temporarily withdrawing from the California Insurance Market.  With the exit of carriers from the state, comes more pressure on the few that decided not to vacate the state yet; their only protection is to reduce risk by eliminating geographic areas that may cause greater concern for the carrier, reducing the maximum coverage limit of properties to be insured and declining to write insurance for those who have experienced prior claims.

A recent call from a frustrated homeowner in Porter Ranch, CA advised us that the prior year premium of $1,932 with a major carrier had been renewed asking for a premium of $5,814 with only a usual 3% increase in dwelling coverage as expected each year;   another caller from Yorba Linda, CA advised us that for the prior 3 years, the homeowner had been paying $1,150 – $1,400 but for the coming year, the major carrier had non-renewed the policy; after contacting an agent as requested, an alternate policy was available for $11,697 with the same carrier.

Although we do realize that many parts of Southern California enjoy the beautiful hillside communities with view lots, we also see that there is an elevated risk of brush fires.  However, in the recent past, we have seen 1000% increase in legal solicitations to homeowners for unseen smoke damage as far as 5 miles from the source of a fire.  Many have their opinion regarding the validity of these claims which clearly have increased the claims payouts and have had a negative effect on the carriers ability to continue underwriting insurance for the premium charged to homeowners.

As homeowners and the state regulatory agency battle with the chaos which certainly didn’t appear overnight, we still do have some preferred homeowners insurance options, there are some non-admitted home insurance options, and also the last resort fire insurance option of the CA Fair Plan.  It is important to note that the CA Fair Plan does NOT provide a Homeowners Insurance Policy and the coverage provided is not comparable, the rates are usually higher and there are many perils excluded from the policy.  For example, Water Damage is NOT covered and Personal Liability is NOT covered as well as many other perils included in the Special Form 3 Homeowners Policy.

In summary, be very cautious when making insurance decisions at this very difficult time.