Have you recently been told by your home or auto insurer that premiums are increasing? If so, you’re certainly not alone. In fact, Californians are experiencing what experts have dubbed an “insurance crisis” and facing serious issues like unaffordable premiums, non-renewal notices, and limited coverage.

While the brunt of these insurance issues is hitting homeowners in wildfire-prone areas, it’s becoming an increasingly universal issue. Earlier this year, I was notified that my homeowner’s policy would increase by more than 100%, and I don’t even live in a fire zone!

The issue, which began around the end of 2023, has captured the attention of state and federal officials. However, with an election year pulling focus, we’re likely going to have to wait a bit longer for a concrete resolution.

Let’s take a look at what’s causing this issue between insurance companies and policyholders, using California as an example. I’ll also review a few steps you can take to maintain coverage and reduce premiums.

What’s Causing the Insurance Crisis?

California Representative Mike Thomas said in a recent press statement, “As insurers increasingly pull out of housing markets, California homeowners and business owners are struggling to find coverage. At the same time, the climate crisis is causing natural disasters to intensify, and families are increasingly relying on their insurers to help them rebuild.”

To understand why insurers are making these tough decisions, let’s delve into the specific factors driving up their costs. It’s a bit of a perfect storm involving a combination of factors, including an increase of:

• Wildfire-related damages
• Home and car repair costs (due to inflation)
• Healthcare and medical costs related to accidents/injuries (due to inflation)
• Climate change concerns

Insurers use actuarial data to determine premium prices, which are based on the likelihood of a claim based on historical claims, average cost of claim, etc. The problem is, the data has changed as a result of high inflation and increased natural disasters due to climate change. The premiums insurance companies have charged in the past are no longer adequate enough to continue providing coverage now and in the future. 

So, insurance companies have two options:

• Increase premiums to accommodate for the higher number of claims and increased costs (which requires Department of Insurance approval)
• Pull out of the market completely by refusing to renew policies (called “nonrenewal”) or offer new policies

Notably, 7 of the 12 primary insurance companies offering coverage in California have either paused or restricted new business — even after the Department of Insurance approved rate increases.1  

What’s Being Done to Address This Issue?

There’s a bit of good and bad news regarding what’s being done to protect consumers against nonrenewals and unattainable premiums. The good news is that lawmakers are aware of what’s going on, and they are gradually implementing safeguards to protect some of California’s most vulnerable individuals (including those recently impacted by a wildfire). 

The bad news is that this insurance crisis began toward the end of 2023, meaning we’re really in the beginning stages of seeing how it’ll all play out. It’s likely that toward the end of the year, we’ll see another wave of rising rates and nonrenewal notices sent out to policyholders. 

Here’s what’s being done at the state level to address the current insurance crisis:

Moratorium on Policy Cancellations

In 2018, a California bill was passed that requires a mandatory one-year moratorium on prohibiting insurers from canceling or nonrenewing policies for individuals living within a “fire perimeter.” After the governor declares a state of emergency, officials identify a fire perimeter based on recent fire activity. Anyone living within those areas or zip codes is protected under the moratorium.  

California FAIR Plan Insurance

The California “Fair Access to Insurance Requirements” (FAIR) Plan is designed to provide insurance coverage to those who own property in fire zones, along fault lines, or in other “high-risk” areas. Participating insurance providers offer plans in a shared market, where they agree to share the risk with homeowners.

The plans may not always provide comprehensive home coverage, but they can help protect homeowners in the event of a catastrophic natural disaster, like wildfires.

Sustainable Insurance Strategy

Lawmakers in California have developed the Sustainable Insurance Strategy, which aims to deliver:

• Accessible insurance
• Protection against climate change
• Resilience within the insurance marketplace

According to its fact sheet, the Sustainable Insurance Strategy is meant to expand benefits provided through the California FAIR Plan Insurance as well as decrease the number of residents who currently hold FAIR Plan policies.

How to Protect Yourself as a Homeowner

Unfortunately, we may be waiting a while to see this issue resolved — but there are steps you can take as a homeowner to improve your chances of maintaining coverage and/or lowering your monthly premiums.

If you live in or near a fire zone and are concerned about non-renewal issues, talk to your insurer about what preventative measures you can take to maintain coverage. This could include:

• Removing dying trees from your property
• Clearing brush around your home
• Installing a fireproof roof
• Retrofitting other parts of your home to be fireproof

Other considerations include:

• Increase your home and auto deductions: Figure out the threshold at which you would just assume the cost of repairs yourself instead of filing a claim. Set that amount as your deductible, and your premiums may drop.
• Scale back on coverage: Review your coverage closely, and identify optional coverage areas that may not be particularly relevant or important to you. The less coverage you have, the lower your monthly premiums will be. 
• Bundle coverage: If you don’t already, try bringing your auto and home insurance under the same carrier. Most will offer a bundling discount.

I know this insurance crisis is a big stressor for many Californians—and it’s starting to creep into other parts of the U.S. as well, like Florida and other coastal states. If you’re worried about finding coverage or adjusting your budget to accommodate rising costs, reach out to your provider and discuss your options for the future.

Sources:

1California’s Sustainable Insurance Strategy