Homeowners Insurance Information

What’s Happening in the California Homeowner’s Insurance Market?

In December of 2023, Insurance Commissioner Ricardo Lara told California Assembly members at a legislative oversight hearing that “California is at an insurance crossroads and for many Californians this is an insurance emergency.” He underscored the need for marketplace reforms, with the California FAIR Plan (See What is California Fair Plan below) reporting 20 percent growth of policies in 2023 and restrictions by major insurance companies pushing more consumers and businesses into last resort insurance options. Commissioner Lara has outlined a plan on what needs to be done to modernize the California Insurance market.

What is Affecting Rate Increases? Why are Policies Non-renewing?

• The three main things affecting change are: Climate Change, Lack of Fire Resiliency and  An Outdated Insurance Rate Review Process.
• Since 2022, 7 out of the top 12 insurance companies have paused or restricted new business despite rate increases approved or pending with the California Department of Insurance. 
• Inflation and increased cost of rebuilding, supplies, labor shortages among other costs are affecting insurance markets.
• National disasters and global inflation have increased insured losses and costs worldwide.
• Insurance companies will not write in high-risk areas, unless they can cover 100% of consumer claims, their expenses, and earn a fair return.
• Rate filings are more complex and can take longer than 6 months to review.
• No new insurance consumer protection reform has been passed since Proposition 103 in 1988 making insurance legislation out of date for the rapid change happening in the marketplace

Bottom line, the risk of catastrophic fire in California is enormous, and appears to be growing. That fact scares the insurance companies, including the worldwide reinsurance and catastrophic bond industry, without which regular property insurers in California cannot operate. Annual catastrophic losses worldwide over the last 5 years have exceeded $100 billion dollars, compared with about $50 billion annual over the previous 5 years. This led to premium increase for reinsurance in the 30% to 50% last year, further straining the ability of California insurance to stay in the market.

General Rights Regarding Rate Increases, Claims, and Cancellations

All information below taken from latest (2024) press release from California Department of Insurance.

• The insurer can’t cancel coverage after a fire loss for at least the next two annual renewal periods.
• In the event of a total loss of the insured structure, a policy shall not contain a provision that limits or denies, on the basis that the insured has decided to rebuild at a new location or to purchase an already built home at a new location, payment of the building code upgrades, including any extended replacement cost coverage, to the extent those costs are otherwise covered by the terms of the policy or any policy endorsement.
• The insurer can’t cancel coverage while the primary insured structure is being rebuilt.
• An insurer can’t cancel or refuse to renew a policy of residential property insurance for a property located in any ZIP Code within or adjacent to the fire perimeter, for one year after the declaration of a state of emergency, based solely on the fact that the insured structure is in an area in which a wildfire has occurred.
• An insurer shall deliver to the insured either (1) an offer of renewal of the policy 45 days before the policy expiration contingent upon payment of premium as stated in the offer, and which states any reduction of limits or elimination of coverage, or (2) a notice of nonrenewal 75 days prior to the expiration that states the reason or reasons for the nonrenewal. For the offer of renewal, the insurer must identify any reduction of limits or elimination of coverage.
• If an insurer fails to give the named insured a notice of nonrenewal at least 75 days before the policy expiration, the existing policy with no change in its terms and conditions, shall remain in effect for 75 days from the date that the notice of nonrenewal is delivered or mailed to the named insured.

What is the California FAIR Plan?

The FAIR Plan was established in 1968 so that all California property owners and tenants have access to basic fire insurance when access to coverage in the traditional market is not available through no fault of the property owner.

The FAIR Plan is California’s “insurer of last resort,” offering a bare-bones policy that covers fire and smoke damage. The FAIR Plan does not offer coverage for theft, falling objects, freezing, or water damage. In order to have the coverage a homeowner needs, a second policy must be purchased to cover liability, water damage, and the other common perils listed above. If the California FAIR Plan is the only property insurance available to you, it recommended that you get an additional policy called Difference in Conditions (sometimes referred to as a wraparound) that provides these important coverages not available in your FAIR Plan policy.

What Can You Do?

It is always best to work with an independent licensed insurance agent when dealing with difficult insurance issues. “Independent” in terms of the agent is not beholden to one carrier, an agent that can shop all carriers that are available to you in the market. Here are some things to consider when selecting/working with an agent:

• Ask them how much of the local insurance carrier market do they have access to? (What carriers are they appointed with?)
• Stay up to date on property codes, repairs, keep records of all work that has been done on your property and be prepared to share them with your agent.
• If your property was built before 1975,  be prepared to get an independent inspector to inspect your property & share that report upon request with your agent and carrier.
• Be proactive, contact your agent before your policy is set to renew so you have time to work through any chances in rates. Homeowners renewal offers are usually mailed from carrier between 45-60 days prior to the renewal date.
• Always talk to your agent before submitting a claim, sometimes it might be better to pay for the work directly to not risk a high rate increase over a little claim. NOTE: The average person has one property claim every 7 years. Knowing this, you might want to opt for a higher deductible to reduce monthly premiums. 
• Be prepared to make updates and changes to your property that will reduce risk to insure. 
• Advocate for yourself. Share your experience with the California Department of Insurance. 

Talk to Licensed Insurance Agent 

Know your insurance rights and options. Use this form if your home or business is dealing with high rate increases, a non-renewal notice, and/or you want to know what other insurance options you have. Contact now.