California Homeowner’s Insurance crisis - What should you do?
Many California Homeowners have received a non-renewal notice from their homeowner’s insurance carriers including some of our clients. The insurance companies are pulling back coverage because of high wildfire risk, high inflation and legal changes. The following insurance companies have made exits or limitations on policies:
Safeco: Safeco Insurance dropped policies in certain areas of San Francisco.
Farmers: Farmers insurance announced a cap on new policies in California, which limits the number of new policies it will issue each month.
Allstate: Allstate announced they no longer write new policies in California.
State Farm: State Farm also announced that they no longer write new policies in California. The California Department of Insurance just approved a 20% premium increase in 2024 for customers with existing policies.
Hartford: Hartford Financial also announced that they no longer issue new homeowner policies in California starting February, 2024.
Other smaller insurances companies that would not renew in California includes: Merastar, Unitrin, and Kemper.
Does the California homeowners’ insurance crisis have any hope?
Although the current insurance market seems bleak for consumers, here may be a glimmer of hope in the horizon. The California Fair Plan is soon to offer more comprehensive homeowner insurance. However, this is still pending on some potential legal appeal; but we are hopeful to see that more comprehensive coverage will be offered in 2024. See the court ruling for more detail.
Also, the California Department of insurance is working on new regulations to try to fix one of the major problems created by Prop 103, which prohibited insurance issuers from raising rates above a 7% threshold. This hindered the California insurance industryfrom adjusting rates to match the worsening weather and risk conditions. The proposed changes would allow insurers to use future prediction models to set policy rates. This inevitably will increase future premiums for policy holders, but it will ensure that insurance companies have enough of a financial incentive to stay in the California market.
The new regulatory changes take time to implement and it might take even longer for the insurance industry to adjust their model. What can one do in the meantime as consumers?
Do not reduce coverage to reduce cost. Review your policy to ensure it aligns with your current needs and coverage requirements.
Avoid making minor claims on your policy if you can help it.
Do what you can to reduce the risk for your property including wildfire prevention in your landscape. Some insurers may offer discounts for proactive risk reduction measures.
If you are dropped by your insurance, work with an independent insurance broker who can provide you with multiple quotes from different insurers.
If your insurance cost is increasing, you may consider a higher deductible to offset some of the increase in cost. However, make sure you can afford the deducible in case of a claim.
Insurance needs must be considered in the context of a long term financial plan. If you wish to discuss your wealth management strategy, contact us to set up a time to speak.
Sources
California Fair Plan Property Insurance. https://www.cfpnet.com/
California Department of Insurance. https://www.insurance.ca.gov/
California Department of Insurance. Proposition 103. https://www.insurance.ca.gov/01-consumers/150-other-prog/01-intervenor/index.cfm
Contributor
Ellen Li is a partner at Financial Alternatives and a lead advisor for many of the firm’s clients and has a special focus on financial planning. Ellen has an MSBA degree in Financial and Tax Planning from San Diego State University and she holds the CERTIFIED FINANCIAL PLANNER™ designation. She is a member of the Financial Planning Association (FPA).