Yo, what’s happening with CA Homeowners Insurance?!

Currently the home insurance shortage in California has gotten bad enough, lawmakers are really paying attention. So many big-name providers are no longer operating in California anymore at all. State Farm, Allstate, USAA, Travelers, Nationwide and Chubb have all either paused, pulled out or canceled because they have reached their tipping point. Policies are getting dropped nonstop, and new ones are not being written. There are super limited options, and the ones available are not awesome. 

But we can’t super fault insurance companies, because when we look at where the chips have fallen, their hands are kind of tied. 

In 1988 Proposition 103 was passed. It said that insurance companies had to get permission from the state Department of Insurance before they could raise any rates. Insurance companies are also not allowed to consider current or future dangers in setting their rates, they can only use historical data. Because insurers aren't allowed to factor in the high fire risk that has popped up since about 2015, they're not able to price policies in a way that makes the risk worth the reward financially. Insurance companies can only stick their neck out so far before they lose money. Insurance companies also have to buy their own insurance, it’s called reinsurance. If the numbers don’t line up in that risk vs reward category, they can’t afford their own insurance, which just isn’t an option. 

Businesses survive and thrive on profit, but in our golden state the formula isn’t lining up for home insurance companies.  The risk got too high, because of the gnarly fire seasons, and on top of that lumber and construction costs are just really inflated.

Now we’re in a weird and sucky situation where a ton of us Californians can only get insured through juggernaut CA Fair plan. Fair plan offers really crappy coverage at a super high premium- it’s suck-town. 

Californians have been very proactive, in the wake of so many brutally devastating fire seasons, with mitigation. Communities, companies and individuals have worked their butts off to make their properties, cities and towns fire safe. California itself has spent billions of dollars in areas that pinpoint wildfire safety including adding 4500 new positions to Cal Fire, maintaining and updating electrical lines, vegetation management, defensible space and so much more. 

Awaiting its time in the limelight currently, is Bill 1060. This new bill is formulated to mend some of the ways home Insurance Companies are broken by allowing them to take into consideration, the level of mitigation that’s been done, when deciding on their rates. They’re petitioning to allow what’s called a catastrophe model, to give insurance companies more room to base their premiums on the fire safety work that has been done. 

Studies done recently by the National Association of Insurance Commissioners found some really solid, doable ways fire risk can be brought down substantially, like cleaning up vegetation in areas that are overgrown and doing some structural modifications to new and preexisting buildings. And their study didn’t show a little decrease in fire danger, they were citing decreased risk numbers as high as 75-80 %! However, in spite of the big moves reducing fire risk, the rates have not come down, and the insurance options have not gone up. 

 Insurance companies are saying they already take some of that mitigation into consideration, and to spite the all the investment and work towards statewide wildfire mitigation, considering mitigation too much in the underwriting process puts to big of a financial risk on the companies, and they just can’t swing it.

Another bill on table is AB2416, which would require property/home insurance companies to evaluate every few years whether the spot is safer than it used to be and locking in the change in rate until it’s reassessed. The idea here is property owners are incentivized to spend the time and money on hardening their homes against fire risk by rewarding the work with lower rates. 

Assembly bill2983 would facilitate the Insurance Department and the California Office of Emergency Services work together to strategize ways where mitigation can really ensure an uptick in home insurance availability. 

There are representatives in Napa and Nevada counties (just to name a couple), going hard with prioritizing our insurance crisis, writing and presenting new bills and policies that offer a variety of ways to address this problem. 

Lawmakers and local representatives are hard at work hustling to solve the insurance shortage. The concerns being voiced have not fallen on deaf ears. Solutions to decrease rates and increase insurance options and definitely being discussed and formulated into plans of action. California will likely see progress in this area in the near future, because it’s a big deal and something’s gotta give.