Homeowners Insurance: Rate increases, and non-renewals are the new normal.
In California, the homeowner’s insurance landscape is undergoing significant changes due to a variety of factors including the increased risk of wildfires, rising construction costs, and challenges within the reinsurance market. These issues have led to some major insurance companies deciding to non-renew a portion of their policies or exit certain market segments altogether. Here’s a closer look at the situation:
State Farm General Insurance Company’s Decisions
State Farm General Insurance Company announced its decision to non-renew approximately 30,000 homeowners, rental dwelling, and other property insurance policies across California. This decision also includes the withdrawal from offering commercial apartment policies, affecting an additional 42,000 policies. These measures, which are set to begin rolling out in July 2024 for various policy types, are part of State Farm’s efforts to ensure long-term sustainability in the state amid challenges such as inflation, catastrophe exposure, and reinsurance costs. State Farm’s decisions are a response to the financial strains caused by operating within the state’s outdated insurance regulations, despite recognizing efforts towards regulatory reforms (State Farm Newsroom).
Wider Trends in the Insurance Industry
Other major insurers like USAA and The Hartford have also announced restrictions or complete cessation of new property insurance policies in California. USAA, for example, will only insure homes with a wildfire risk score below a certain threshold, citing “expected rate inadequacy” as the reason for tightening its guidelines. These moves reflect broader industry trends where companies are grappling with California’s stringent state insurance regulations, inflation, increased wildfires, and rising reinsurance costs (Yahoo Finance).
Legislative and Regulatory Challenges
Proposition 103, passed in 1988, requires insurance companies in California to obtain approval from the state Department of Insurance for rate increases above 7 percent, complicating insurers’ ability to adjust premiums in response to current and future risks. This regulation, coupled with the state’s prohibition against considering future risks or reinsurance costs in rate setting, has contributed to the current crisis. Insurance companies have expressed difficulty in operating sustainably under these conditions, leading to reduced policy offerings and non-renewals (Yahoo Finance).
The Impact of Wildfires and Proposed Reforms
Insurers point to the severe wildfires in recent years as a tipping point for their decision to reduce their engagements in California. The state has experienced some of the worst fire seasons in its history, with millions of acres burned and thousands of structures destroyed. These events have not only led to direct losses for insurers but have also increased the perceived risk of insuring properties in California, further straining the industry (Sun Gazette).
In response to these challenges, California’s Insurance Commissioner has proposed new rules that would allow insurers to consider climate change and some reinsurance costs when setting their rates. This proposal aims to create a more sustainable insurance market that can better address the risks posed by wildfires and other climate-related threats. However, these changes, while potentially beneficial for the availability of insurance, raise concerns about possible increases in premiums.
The situation remains fluid, with ongoing discussions between insurers, regulators, and other stakeholders aimed at finding a balanced solution that protects homeowners while ensuring the insurance industry can operate sustainably in California’s challenging environment.
What should homeowners do?
Jump Insurance Services has been helping homeowners navigate this once in a generation insurance marketplace. For those that are being non-renewed, we suggest contacting us immediately. The reason is that some carriers are near full capacity for new business, and you don’t want to find out a carrier has closed access to your zip code. If you have a large premium increase, Let’s have a conversation. It may be time to do a comprehensive review and see if your needs have changed or you possibly have gaps in your current coverage.
www.jumpins.com 888-724-7242
