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Residential Insurance Prices Increase as Insurers Slow Business in California

McKenzie Jackson | California Black Media

Joseph Thomas was surprised to receive a notice from his homeowner’s association (HOA) this spring letting him know that there would be an increase in insurance premiums for him and other condominium owners at The Met in Los Angeles’ San Fernando Valley.

The letter stated the increase was due to instability in California’s property insurance market. This left Thomas feeling perplexed.

“They said the premium was going up because it was hard to get insurance in California now, and a lot of companies are leaving,” he recalled. “I started googling because I didn’t believe it. I thought they were robbing us of our money, but I googled it. It is a thing.”

The premium increase of $1,000 over eight months is the first time Thomas has experienced an increase in insurance costs in the 12 years he has owned his one-bedroom condo, which sits off the 101 freeway about 25 miles north of Downtown Los Angeles.

“My HOA looked at like 200 insurance agencies,” Thomas noted. “The situation is just whack.”

Thomas is not alone in realizing that California’s property insurance market is on shaky ground. Giant insurance companies are refusing to offer or renew coverage for homes and residential complexes across the state due to the looming threat of wildfires, natural disasters, inflation, and other factors and, as they claim, their ability to get adequate rates to pay for these increased costs.

Since 2020, the state has experienced eight disaster events resulting in overall claims ranging from $20 billion to $50 billion. This has caused an increase in pressure from insurance companies to tighten California’s consumer-friendly policies that have held down rates for years.

State Farm General Insurance Co., California’s largest property insurer, announced in May it would stop taking applications for all business and personal lines of property and casualty insurance because of “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”

“We take seriously our responsibility to manage risk. We recognize the Governor’s administration, legislators, and the California Department of Insurance (CDI) for their wildfire loss mitigation efforts,” the company said in a press release. “We pledge to work constructively with the CDI and policymakers to help build market capacity in California. However, it’s necessary to take these actions now to improve the company’s financial strength. We will continue to evaluate our approach based on changing market conditions.”

Allstate, California’s fourth-largest property insurer, made a similar decision last fall.

“The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes, and higher reinsurance premiums,” a spokesperson for the company told the San Francisco Chronicle in June.

California Rental Housing Association (CalRHA) Executive Director Russell Lowery said insurance premium costs have jumped up millions of dollars for property owners in his group.

“With insurers leaving the market that means our members don’t get as competitive of a quote,” he noted.

Lowery said rising insurance prices hit renters’ pockets also.

“Extraordinary increases,” he noted. “The pressure on property owners to pay that cost in the form of higher rent is very real.”

Lowery did not give an exact figure for the increase in insurance costs faced by rental housing owners. However, he mentioned that a survey of the group’s over 24,000 members revealed that insurance costs are their primary concern.

According to the Insurance Information Institute, which represents the industry, the average annual home insurance premium in California is $1,300, an increase of 16% from 2019.

The California Department of Insurance reports that 115 insurance companies are still providing residential policies in California.

There is also California’s FAIR Plan Association, created to help state homeowners who can’t find insurance in the regular marketplace obtain minimal coverage at high rates. Its enrollment has increased 70% between 2019 to 2022 to 272,846 homes.

California Insurance Commissioner Ricardo Lara has taken steps to make insurance more affordable for Californians. They include expanding FAIR Plan coverage options and requiring insurance companies to acknowledge and reward wildfire safety and mitigation efforts made by property owners. The commissioner is also in ongoing discussions with insurers to address their rate increase requests.

“Commissioner Lara is committed to continue to look at how we could give insurance companies more tools to better manage risk given the continued threat of climate change so we can maintain competition and ensure stability in the insurance marketplace while protecting consumers,” his office said in a statement.

In a letter to Lara, CalRHA President Earle Vaughan said the state’s housing crisis worsens annually.

“And our members take our commitment to provide safe, well-maintained housing for more than 675,000 Californians seriously. However, with rising operating costs, like home insurance, we’re taking a heavy hit,” Vaughan said. “We urge Commissioner Lara to support state and local funding for wildfire mitigation, ensure the FAIR plan has adequate reserves and reinsurance to cover losses, and speed up the adjudication of insurance rate filings.”

Lowery said the insurance cost increase is a huge issue.

“It makes it harder and harder for mom-and-pop property owners to provide the housing that everyone agrees is so desperately needed,” he stated.

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