In recent years, thousands of California residents have lost their home insurance. Siyamak Khorrami, host of Epoch TV’s “California Insider,” discussed this topic in a recent program.
To help understand this complex issue, Khorrami invited an insurance broker with 40 years of experience, as well as a couple who recently lost two properties due to California wildfires, one of which was uninsured.
Furthermore, two California lawmakers also provided detailed solutions and their views on how to address this issue.
The problem began in 1988 when California residents passed Proposition 103, which capped increases in auto insurance rates––a law that eventually extended to property insurance policies and created the position of California Insurance Commissioner.
Since then, the insurance commission has approved premium increases for residential/commercial properties based on historical data, with a cap set at 7%. If insurance companies propose higher increases, they will face challenges from residents and oversight organizations. Experts say that even if the rate increases are eventually approved, it could take up to two years.
This resulted in artificially suppressed property insurance premiums in California while other costs for insurance companies continued to rise.
Insurance broker Harry Crusberg stated that the crisis of insurance cancellations or withdrawals from California began during the COVID-19 pandemic when the state insurance commissioner froze all premium increases, causing losses for insurance companies.
Crusberg said that for every dollar insurance companies earn, they lose $1.15-$1.25, which can amount to significant losses for the companies when discussing millions or billions of dollars.
As a result, insurance companies, big and small, began issuing non-renewal notices or completely withdrawing from the California market.
Suddenly, many homeowners lost their insurance, having only two options: accept coverage from “non-admitted insurers” (not regulated or guaranteed by the state) or obtain insurance through California’s Fair Plan, established over 50 years ago as a last resort emergency measure.
Experts suggest that both these options are often much more expensive than traditional insurance (though prices may vary), sometimes even up to 10 times higher.
The Fair Plan is not government-funded but is funded proportionally by regulated insurance companies in the state. According to Crusberg, the industry’s payments to the Fair Plan have reached about $40 billion in risk.
Crusberg said the combination of frozen premium increases, payments to the Fair Plan, high costs for reinsurance (insurance held by insurers themselves), and more wildfire and disaster claims have made the industry unstable.
He stated, “They have to pull back because they simply do not have the capital to sustain all of this.”
According to Crusberg and others, there is now a “light at the end of the tunnel.” The California Insurance Commission recently changed its decision-making process to allow wildfire/risk premiums to be based on the latest events. Additionally, under the commission’s latest plan, approval must be given within 90 days for proposed fee increases by insurance companies.
However, as the implementation of this new “sustainable insurance model” plan has not yet taken place, some individuals are opting for a third choice: completely foregoing residential insurance.
Michael and Christy Daneau are one such case. In 2018, they lost a home in the Camp Fire in Butte County in Northern California, and in July of this year, they lost another house in the Park Fire.
The couple stated that before the first fire, their home insurance cost only $86 a month. However, after moving to the Chico area, their insurance through the Fair Plan (the only company willing to insure their home) increased to $7,000 in the first year (about $580 a month), to be paid in full.
They also had to purchase additional insurance for their new home since the Fair Plan only covers fire insurance.
The Daneaus mentioned their insurance cost rose to $10,000 in the second year, still due in full; reaching $12,000 in the third year, making it unaffordable for them.
Ultimately, they had to give up insurance. This was an especially difficult decision since the couple had already lost one home to a fire, never anticipating the second blow.
Mrs. Daneau said, “It was just too much for us.” After the Park Fire, they were left with almost nothing, “from being homeowners, having property, to now just some clothes and a few personal belongings.”
California’s 3rd District Senator representing Napa, Contra Costa, and Sacramento counties, Bill Dodd, told Khorrami that choosing to forego insurance is not a wise decision. He said, “All you can do is hope and pray. That is not a good strategy.”
He expressed confidence in the new plan by the Insurance Commissioner, allowing insurance companies to use climate and disaster models to increase rates and consider the costs of reinsurance.
Dodd stated that because the industry’s rate increases have long been limited to 7%, allowing them to catch up to a 25%-40% increase would ultimately prevent many insurance companies from exiting California.
He said a 35% overall rate increase is much better than non-renewal of policies or paying 3-4 times or even 10 times the premiums. “This is at least affordable, feasible, and will ultimately create a more stable insurance market, perhaps over time, competition can lower these prices.”
He pointed out that in the past year, the number of policies under the Fair Plan has more than doubled, which is a “critically severe problem.” “The plan has too many customers and cannot truly bear this kind of risk.”
With the changing landscape, property owners under the Fair Plan or customers using non-admitted providers will decrease as more traditional insurance companies re-enter the market, reclaiming those lost customers.
Additionally, Senator Dave Cortese of the 15th District representing Santa Clara County discussed the possibility of “fractional” insurance. For example, insuring only a portion of the property, which he said requires further research.
He also mentioned that some bills might be introduced in the next legislative session (starting in January) to make the insurance process more favorable for homeowners, especially in terms of fire risk, such as rewarding actions like reinforcing homes and creating defensible space around them.
Through this, homeowners could go back to the insurance companies and say, “We have reduced the risk. Can you now insure these properties?”
Cortese also stated that the legislature should consider providing a state-funded backup financial safety net for the Fair Plan. If there are several major losses, the Fair Plan could potentially go bankrupt.
In conclusion, Cortese emphasized that both the Senate and Assembly have established insurance working groups to propose solutions and return the insurance market to its natural state.
He stressed that the legislature takes this issue very seriously. “We know that those who invest their entire life savings in homes and properties cannot be left at risk without insurance.”
Cortese said finding a balance between protecting homeowners and ensuring enough profit for insurers to stay in California is a challenge. But “that is the goal we are trying to achieve.”