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October 31, 2023

Finding Coverage in the Hard California Insurance Market

The California insurance market is going through a difficult period. Rates are rising and coverage options are dwindling as carriers leave the market. However, by using the right strategies, it is still possible to secure the coverage you need.

Rising Losses Are Squeezing Insurers

Insurers are facing rising claims costs due to several factors:

  • Inflation is driving up the cost of repairs.
  • Natural disasters are causing massive losses. According to AP News, year-over-year catastrophe losses doubled at Travelers in the second quarter of 2023. NOAA says there have already been 23 separate weather/climate disasters with losses exceeding $1 billion in 2023.
  • Auto theft rates have increased. The Council on Criminal Justice says motor vehicle thefts increased by 33.5% in the first half of 2023.
  • Auto repair costs and repair times have surged. Parts shortages and backlogs have driven up claims costs.

Insurance Carriers Are Abandoning California

Insurance carriers are pulling out of California in droves.

According to the North Bay Business Journal, multiple carriers have stopped writing homeowners policies or have reduced their number of policyholders. These carriers include AIG, Allstate, AmGUARD Insurance, Chubb Ltd, Falls Lake Insurance, Farmers, and State Farm. First Street Foundation says non-renewals have increased by almost 800% in some areas. 

Auto insurance is suffering a similar fate. Money says Kemper Personal Insurance is canceling and not renewing policies because the company is leaving the auto insurance market. In addition, Topa Insurance Company will no longer write auto insurance in the state.

When considering why insurers are leaving California, natural disasters stand out as an obvious reason. Between severe storms and wildfires, California has faced major catastrophe losses.

The state’s rules on underwriting may also play a role in recent carrier exits. In many states, insurers use predictive analytics to set rates in line with expected losses. However, AP News explains that California regulations prevent insurers from using current or future risks when determining rates. Instead, insurers must rely on historical data. Many insurers argue that this rule makes it difficult to price risk accurately amid increasing natural catastrophe losses.

Policyholders Are Paying More

Some policyholders receive notices of rate hikes when their policies are up for renewal. According to NBC News, the average annual home insurance premium has increased by 16% since 2019. However, policyholders who find out that their insurer is canceling their coverage may face even steeper rate hikes as they search for carriers that are willing to cover them.

Policyholders can also expect to pay more for auto insurance. According to the Motley Fool, rates could increase by an average of anywhere from $71 to $167 per policyholder.

Strategies for Securing Property Insurance in California

For property owners facing rising rates and policy non-renewals, the situation may seem grim. However, it is still possible to secure coverage. Here are some best practices to keep in mind.

  • Start the process early. Allow your broker adequate time to help you explore the options available.
  • Take good care of your property. Insurance carriers may be more willing to write coverage if your property is well maintained and loss prevention measures are in place. For example, if your roof is nearing the end of its life, you may want to replace it before your next renewal.
  • Eliminate fire hazards. According to Jalopnik, a man in California had his homeowners policy canceled when the insurer spotted “debris, hazardous conditions, tires or a dilapidated car” in his yard. Some insurers are now using drones to verify the condition of the properties they are underwriting.
  • Be open to new ideas. Explore creative insurance options with your broker. For example, you may need to layer policies from different carriers or use a parametric policy to cover certain exposures like wildfire. You may also need to consider global insurance partners who have less exposure in California.
  • Manage vacant properties. If your property is vacant, you will need to contact your insurer about coverage requirements. Most homeowners insurance policies consider a home to be vacant if it is empty for 30 or 60 days. This impacts coverage.
  • Talk to your broker before building or remodeling. If you’re building a new property, it may be difficult to secure adequate construction insurance, which could lead to delays and higher costs. If you’re remodeling, discuss the insurance implications with your broker. Tell them if your property will be vacant and how your property value will be impacted.
  • If all else fails, consider The FAIR Plan. It provides basic fire insurance coverage when homeowners are unable to secure coverage in the traditional insurance market.

It is especially difficult for homeowners and drivers to secure California insurance right now, but an experienced broker can help you explore all your options. As the process may take time, don’t wait to get started. Contact Heffernan Insurance Brokers.

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