California home insurance crisis: These are the major insurers still offering policies

Numerous Californians have lost their home insurance over the past few years as some of the state’s largest insurers have cut back.

Photo by Ross Stone on Unsplash

Some insurers have limited where they will write new policies, and others have stopped writing new policies altogether. While most of the state’s 10 largest insurers say they are still offering new policies and renewing existing ones, there are key exceptions.

Together, the top 10 insurers represented just over half of the total California property and casualty insurance market in 2022, according to the latest available data from the California Department of Insurance. 

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Here’s what to know about the top 10 home insurers in California:

No. 1 State Farm

State Farm, California’s largest property and casualty insurer with an 8.7% market share, hasn’t offered new home policies since May 2023. The company said wildfire risk, construction costs and pricey premiums for reinsurance (insurance for insurers, which cannot be factored into rates in California) motivated the decision. 

The company has continued to renew most, but not all, of its existing policies, though prices are rising. In March, State Farm rates rose an average of 20% across the state. Shortly after the rate increase took effect, State Farm announced it would not renew 72,000 policies — 30,000 homeowner and other personal property policies and 42,000 commercial property policies, a small fraction of its policies in the state.

Click here to read the full article in the SF Chronicle

California’s firefighters can’t get fire insurance

“We can’t get fire insurance at a fire station that’s going to be manned by firefighters,” one state lawmaker said in incredulity.

SACRAMENTO, California — How bad is California’s wildfire insurance crisis? So bad that the state can’t get coverage for its own firehouses.

CalFire

The irony emerged at a state Senate budget subcommittee hearing Thursday in Sacramento, where Gov. Gavin Newsom’s administration defended the California Department of Forestry and Fire Protection’s request for $11 million to replace a kitchen at Ishi Conservation Camp, which houses and trains inmate firefighters in the remote Sierra Nevada foothills of Tehama County.

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Cal Fire usually pays for building maintenance with bonds based on the value of its property, but it couldn’t for the Ishi project because it couldn’t insure the facility to underwriters’ satisfaction, Finance Department analyst Victor Lopez told lawmakers.

“The insurance industry, they weren’t interested in selling insurance policies in the region due to the perceived fire risk in the area,” Lopez said. And the insurer of last resort, FAIR Plan, doesn’t meet the bond underwriters’ requirements, either, he added.

State senators from both parties were incredulous.

“We can’t get fire insurance at a fire station that’s going to be manned by firefighters,” said state Sen. Brian Dahle, a Republican from Lassen County, in the northeast corner of the state. “That’s where we are in California. That to me is crazy.”

Add Cal Fire to the growing list of constituents putting pressure on lawmakers to do something to stop property insurers’ exodus, which makes headlines daily as companies announce policy non-renewals or moratoriums on new coverage.

California Insurance Commissioner Ricardo Lara agreed last year to let insurers raise rates and base them on future projections of fire damages, after lawmakers punted the decision to his office. Lara has been duly handing out rate increases, but insurers are still leaving: In the past two months alone, American National announced it would leave the state and State Farm said it would drop tens of thousands of homeowners.

State Sen. Josh Becker, a Democrat from Silicon Valley, highlighted his bill to require insurance companies to give property owners more credit for things like installing fire-resistant roofs and building fire breaks. (Insurance companies oppose it, saying it could force them to take on too much risk.)

“It’s ironic and highlights the problem we’re trying to solve,” he said about Cal Fire’s insurance woes. “We’re just trying to get recognition for the direct fire mitigation on the ground.”

Ishi might be the tip of an iceberg.

Mike McGinness, Department of Finance’s deputy director responsible for Cal Fire, said he only knew of one other Cal Fire facility that has had a similar problem so far. But the Department of General Services, which oversees all state facilities, has identified 16 projects statewide — 11 of which are Cal Fire’s — that may have trouble getting fire insurance, spokesperson Monica Hassan said in an email.

Cal Fire and the Department of Finance are now reviewing all the maintenance and upgrade projects seeking funds this year to figure out if others might struggle to get fire insurance, too, McGinness said.

“Typically, this hasn’t been an issue and so we have waited until closer to the point of selling the bonds,” he said. “But given recent trends in the insurance industry, it’s been important to start looking.”

So far, lawmakers have defended Cal Fire’s increasing drain on state coffers, even in a down budget year, as Newsom adds firefighters to cut back flammable vegetation and protect communities from increasingly intense wildfires.

Click here to read the full article in Politico

State Farm discontinuing 72,000 home policies in California in latest blow to state insurance market

SACRAMENTO, Calif. (AP) — State Farm will discontinue coverage for 72,000 houses and apartments in California starting this summer, the insurance giant said this week, nine months after announcing it would not issue new home policies in the state

The Illinois-based company, California’s largest insurer, cited soaring costs, the increasing risk of catastrophes like wildfires and outdated regulations as reasons it won’t renew the policies on 30,000 houses and 42,000 apartments, the Bay Area News Group reported Thursday.

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“This decision was not made lightly and only after careful analysis of State Farm General’s financial health, which continues to be impacted by inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations,” the company said in a statement Wednesday.

“State Farm General takes seriously our responsibility to maintain adequate claims-paying capacity for our customers and to comply with applicable financial solvency laws,” it continued. “It is necessary to take these actions now.”

The move comes as California’s elected insurance commissioner undertakes a yearlong overhaul of home insurance regulations aimed at calming the state’s imploding market by giving insurers more latitude to raise premiums while extracting commitments from them to extend coverage in fire-risk areas, the news group said.

Click to read the full article in AP News

Californians finding it hard to keep their homes insured amid skyrocketing rates, canceled policies

LOS ANGELES — More and more Californians are finding it difficult, or even impossible, to keep their homes insured amid skyrocketing rates and policies being canceled by insurance companies.

Eyewitness News looked into the cause of this insurance crisis and what can be done about it.

Homeowners like Susan Bookheimer of Calabasas have seen firsthand the difficulty of keeping your home insured.

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“The insurance didn’t care,” she said. “They increased the rates just an incredible amount of money.”

She says that after one insurance company raised her premium to $19,000 a year, she naturally tried to find something less expensive.

“It was terribly hard. I called all of the major insurance companies. None of them would even talk to me. They’re not writing policies,” said Bookheimer.

She was able to find a different company but just recently that company also raised the premium.

She feels lucky to even have insurance. Thousands of people are getting notices that their polices are either going up or not being renewed at all.

Major insurers such as State Farm stopped accepting new applications in May of last year. Allstate also stopped new policies.

Bookheimer says she cut back vegetation and she keeps the area around her house clear.

Los Angeles County Supervisor Kathryn Barger says her office is getting numerous calls from homeowners who say they are protecting their homes but are still losing their insurance.

“They are doing clearance and I feel that they feel that this is just an excuse for them to cancel their insurance or charge more,” said Barger.

Record-breaking wildfire seasons in 2017 and 2018 caused huge losses for the insurance industry in California. In November 2018 alone, insurer losses were more than $12 billion. That’s when the number of cancellations started to go up.

In 2019 there were 234,000 cancellations statewide. The number of cancellations dropped during the pandemic to 186,000 and then jumped in 2021 to 241,000.

Insurance companies say because of climate change we are seeing more fires, more floods, more hurricanes.

“It’s not great news for consumers but insurers have said they need more price in order to take on the additional risk and loss associated with these climate change-driven, more frequent and severe wildfires,” said Dave Jones, the former insurance commissioner for California.

Bookheimer says she sent complaints to the current state insurance commissioner but never heard back.

We tried to interview current insurance commissioner Ricardo Lara. We asked his office several times over the last few weeks but they never made him available.

Barger is asking Lara to find a solution with insurance companies.

“Much of this is being done by an industry that is regulated by the Department of Insurance but is also using their leverage to say we are going to pull out of the state entirely,” said Barger.

Click here to read the full article on ABCNews

CA Dept. of Insurance Approved State Farm 20% Home Insurance Rate Increase

‘Consumers are ultimately just the ones footing the bill’

The California Department of Insurance approved a request by State Farm Insurance on Wednesday to allow the company to raise all active home insurance rates by 20%.

Throughout 2023, multiple insurance companies operating in California either stopped accepting all new homeowner insurance applications or put severe limits on how many new applications can be accepted in a year.

State Farm became the first company to no longer accept new applications for any kind of insurance other than personal vehicle insurance in May.

In June, Allstate had a similar announcement, saying that they had already stopped accepting new applications.

Farmers was the next to announce in July, reducing the overall number of new monthly policies that they would accept.

Throughout the rest of the year, multiple other insurance companies announced that they would be ending homeowners policies, such as AmGuard and Falls Lake, only further limiting the number of insurance options for homeowners. This is all on top of several insurance companies, such as AIG, leaving the California homeowners insurance market in the past few years, as well as many layoffs in the field.

While many thought that the home ownership insurance decline halted at the end of the year, it instead bled right into 2024 with State Farm’s 20% announcement. According to State Farm, the massive rate change, specific to California only, was made because of rising costs as well as interest rate changes.

“These rate changes are driven by increased costs and risk, and are necessary for State Farm Mutual Automobile Insurance Company and State Farm General Insurance Company to deliver on the promises the companies make,” said State Farm on Wednesday in a statement.

Insurance Commissioner Ricardo Lara also added that the new rates were found  fair and not excessive because of the increased risk that insurance companies have in the state.

“The purpose of the Department is to approve rates so long as they are not excessive, inadequate or unfairly discriminatory,” said Lara. “Yes, the most recent rate change application from State Farm was approved.”

The new rate change for consumers will begin on March 15th, with it being applied to policyholders throughout the year when the policy comes up for renewal.

Experts told the Globe on Thursday that State Farm, the largest home owner insurance company in the state, had little choice in such a hike, and that other companies may follow suit.

Click here to read the full article in the California Globe

Walters: How will California respond to the home insurance market meltdown?

While Gov. Gavin Newsom and state legislators wrestle with a massive state budget deficit this year, a few blocks from the Capitol another crisis that could have far more impact on California families will be playing out.

State Insurance Commissioner Ricardo Lara speaks during a press conference with Los Angeles labor leaders and advocates in Commerce on Sept. 26, 2022. Photo by Alisha Jucevic for CalMatters

Ricardo Lara, California’s insurance commissioner, will be trying to dissuade companies that provide insurance coverage to millions of homeowners from fleeing the state. Citing heavy losses from disastrous wildfires and the potential for more destruction in the future, the largest insurers, such as State Farm and Farmers, have already cut back on new policies and renewals.

As a result, many homeowners in fire-prone regions have been forced into the state’s last ditch insurance plan, called FAIR, which offers reduced coverage at high premiums, to protect themselves and comply with their mortgages.

The industry wants to include actuarial projections of future losses and the costs of reinsurance in their premiums. Neither factor is now allowed under regulations approved by voters more than three decades ago under a ballot measure that also made the insurance commissioner an elected official.

As the list of insurers reducing their exposure in California mounted last year, the Legislature briefly tried to come up with a revised regulatory process that would induce them to keep writing policies, but adjourned in September without action.

Newsom punted the crisis to Lara and he quickly laid out in broad terms new rules that would allow estimates of future losses to be folded into premium requests and hinted that including reinsurance might be approved. In return, Lara would require insurers to maintain at least 85% of their market in fire-prone regions.

His announcement set in motion what could be a year of hearings and other processes to write new rules that would, in effect, modify much of the 1988 ballot measure that created California’s highly regulated insurance system and strictly limited the factors that could be included in rate requests.

It has exacerbated a running feud between Lara and Consumer Watchdog, the organization that sponsored the 1988 ballot measure and has benefited handsomely from “intervenor fees” for participating in premium rate proceedings ever since. Consumer Watchdog has been highly critical of Lara throughout his tenure, and charges that his proposed systemic changes would be a sellout to the insurance industry.

“He’s basically capitulated to the industry,” Jamie Court, the group’s president, said of Lara at one point. “There’s not really much coming back for the consumer in here.”

In response, Lara cites his duty to maintain a viable insurance market and accuses Consumer Watchdog of protecting its own financial interests.

“One entity is involved in nearly 75% of all interventions for rate approvals, materially benefiting from a process that is meant for a broader public participation,” Lara responded to the allegations, adding, “throwing bombs is easy and putting out bombastic statements from entrenched interest groups doesn’t benefit anyone.”

Until the crisis, California’s average homeowner premium was slightly lower than the national average.

There’s no question that if Lara makes major changes to insurance regulation, homeowners’ premiums will increase. In fact, last month, he approved a 20% premium increase for State Farm, which holds more than a quarter of the state’s market and had announced a moratorium on new policies.

Click here to read the full article in CalMatters

Getting car insurance gets harder: California drivers face delays, higher rates

If you’re having trouble finding affordable car insurance, you’re not alone. Drivers across California say they’re having to wait longer than usual to get coverage — and when they finally find an insurer and a plan, they’re having to pay their premiums up front. 

“Something is definitely not right,” said Willis Lai, a 36-year-old driver from the Bay Area who said it took him three weeks to find insurance for his new Honda Accord hybrid after he contacted all the major insurance providers whose jingles he could remember. 

He’s not the only one. For the past year, drivers have been complaining in online forums such as Reddit and Facebook about higher premiums, delayed quotes, questionable insurer behavior and more. The California Department of Insurance is looking into similar complaints. Meanwhile, insurers have complained that their costs are rising, and that the state has been slow to approve their requests to raise their rates partly because of what they say are California’s cumbersome regulations.

“All auto insurance companies admitted in this state are required to write all ‘good drivers,’ and we are currently investigating these issues to determine whether or not the alleged actions are in compliance with insurance law,” said Michael Soller, deputy insurance commissioner and spokesperson for the state’s insurance department. 

The insurance department also is in the middle of setting new regulations for fire insurance as some of the biggest insurers have pulled out of California, citing increased wildfire risks. That has led to skyrocketing premiums that some homeowners have said they can’t afford, and Gov. Gavin Newsom issued an executive order in September directing the insurance commissioner, Ricardo Lara, to try to solve the problem.  

In California, drivers who have had a license for the past three years and have not had more than one point on their record within that period are considered good drivers. California is one of only four states that requires insurers to sell insurance to good drivers, and is the only state that requires insurers to offer good drivers a 20% discount. It is also the only state that mandates that insurance premiums must be based on three factors: a driver’s record, experience and miles driven annually.

Yet insurance premiums vary widely depending on many factors, including different coverage levels, what type of vehicle, where the driver lives and more. For example, a single driver with four years or less of driving experience could pay anywhere from $2,000 to almost $20,000 a year, according to the comparison tool on the insurance department’s website. Considering his age and good driving record, Lai expected to find a policy that would’ve worked out to less than $200 a month. 

Instead, Lai said he got an online quote from Geico for $750 for six months, but near the end of the process encountered a technical issue on the website and was directed to call an agent. That agent asked him to try again, and the second time around, he received a quote of about $1,000 for six months — which still would have worked out to about what he expected to pay, according to his research.

The state insurance department has approved a total of 111 rate increases so far this year. The department is reviewing 80 more such requests filed this year.

Lai said he ended up talking to three agents within a couple of hours, and was told he would have to wait 15 days — some insurers have instituted new, varying waiting periods and upfront payment requirements — and be mailed a confirmation. He asked if he could be emailed a confirmation instead but was told the company’s current policy is to use snail mail, even though Geico closed all its offices in California last year and is supposed to be offering policies online. 

While he was waiting for Geico, he contacted Wai Cheng Insurance Agency, in Pleasanton, where an agent helped him get approved for coverage through Progressive on the same day. 

He eventually received the confirmation from Geico, which asked him to provide copies of a utility bill, his vehicle registration and more. He said he was told that once he produced the required documentation, he would be contacted — again, by mail — to be informed of the next step.

“I think Geico was intentionally slowing down the process,” Lai said. “They made it way too hard to get insurance.”

A Geico spokesperson did not return a request for comment. But in a September letter to a deputy insurance commissioner in response to a consumer advocacy group’s questions about whether Geico has been limiting access to its auto insurance policies in California for the past five years, a company executive denied that the company was doing so.

“GEICO rejects the premise of the question in its entirety,” wrote Russell Ward, senior director of insurance product management for the company, in a letter that was obtained by advocacy group Consumer Watchdog and was seen by CalMatters. “GEICO, to the best of its knowledge, is in full compliance with all California laws, regulations, and (California Department of Insurance) requirements,” Ward added. Among the specifics he mentioned: “Our website, mobile app, and digital offerings have been available for new business inquiries providing real-time preliminary quotes throughout this time period.”

Another driver, Victor Lopatyuk, said he had a similar experience with Geico as he sought to insure a 250cc dirt bike he had spent a year restoring. “Geico seemed reasonably priced,” said the 21-year-old driver, who lives on the Central Coast. “Then the packet arrived in the mail one hour before the deadline (for) sending back my information.” 

Lopatyuk eventually found an agent who referred him to Progressive, but the interaction with the company left him feeling confused, “like they don’t really want me to go with them.” He said Progressive required an upfront payment for the year, and told him “It’s OK if you can’t pay that. We understand if it’s too much.” He paid the premium, which he said is a little less than $2,000 a year for 4,000 miles — more than what about a dozen of his friends who are the same age and driving similar bikes told him they are paying.

Why is this happening?

The rising premiums can be explained: The state insurance department has approved a total of 111 rate increases so far this year, Soller said, with 58 of those from requests filed this year. The department is reviewing 80 more such requests filed this year, he said, adding that there are more than 130 companies that offer auto insurance in California.

Data from the insurance department shows rate hikes ranging from 4% to double-digit percentages, with the highest auto premiums approved so far being a 62% increase from online car-insurance company Root Insurance, and a 65% increase for motorcycle insurance from Geico.  The approved rate increases so far have averaged 13.2%, compared with an average of 10.6% in 2019, before the pandemic. In 2018, the average approved rate increase was 6.8%. 

After sending $2.5 billion in rebates — at the request of the state insurance department — to some California drivers who were stuck at home because of pandemic lockdowns in 2020, insurers say their rate requests, which most insurers submit every year, are now urgent because people have resumed driving as usual, and costs of claims have risen along with prices of other goods and services. Also, they say the state’s insurance department didn’t approve any increases for more than two years — the department’s records show it approved 15 in 2020 and six in 2022.

So in early 2022, “we met with the department and said let’s talk about inflation, miles driven, loss costs, all of it,” said Denni Ritter, vice president for state government relations for the American Property Casualty Insurance Association, a national trade association for home, auto and business insurers. Ritter also said supply-chain issues during the pandemic that drove up the prices of cars and parts are factors in higher insurance premiums. 

Those factors mean rising auto premiums aren’t unique to California. An S&P Global Market Intelligence report found big jumps in auto insurance rates across the nation, with California premiums up 9.7% from 2018 as of August — about in the middle among other states’ premium increases — though that includes the pause in insurance rate hikes in the state because of the pandemic.

“We urge consumers to contact us.”MICHAEL SOLLER, SPOKESPERSON, CALIFORNIA DEPARTMENT OF INSURANCE

What is unique to the state is Proposition 103, which was passed in 1988 and contains a provision that requires hearings for any personal insurance rate increase requests above 7% if a member of the public challenges it. Because of that provision, insurers consider California to be the “worst market,” said Vanessa Wells, an attorney who represents insurance companies and said the hearings can sometimes take a couple of years. 

Because asking for a 7% increase comes with the risk of a hearing, “Everybody asks for 6.9%, so then you get behind,” Wells said, adding that she thinks that once insurers’ requested rate increases are approved, insurance availability should improve for California consumers.

“Auto is very illustrative of the regulatory issues in California,” said Ritter of the American Property Casualty Insurance Association.

Hearings over property and casualty rate filings are rare, though. The most recent hearing for auto insurance was last year, and before that it was in 2009, Soller of the insurance department said.

California also has the most drivers out of all the states, with about 27 million licensed drivers in 2021, 9 million more than the next state with the most drivers, which was Texas, according to Statista. So as long as insurers want to do business here, they have to abide by Prop. 103. 

In 2021, the industry’s lobbying rose to $9.2 million, up almost $2 million from the year before and the highest amount going back two decades.

The state’s regulations have helped save drivers $2.5 billion since 2002 as Consumer Watchdog has challenged rate increases, according to the advocacy group’s calculations. Insurers and the insurance department often criticize the group over the $11.5 million it has received over those years as an intervenor in auto and other insurance rate-increase proposals, but Consumer Watchdog Executive Director Carmen Balber said most of that money goes to attorneys and experts who help the group do its work.

“(Insurers) do not like the rules,” Balber said, adding that insurers seem to be using this moment to justify their anti-regulation stance. “We have a combination of inflation and climate change that the industry is really leveraging as an opportunity to claim it’s regulation that’s holding them back.”

Additionally, a Consumer Federation of America study published in 2019, which was based on data from insurance commissioners around the nation, found that in California and other states that must approve rate increases by insurers, drivers’ insurance premiums have not risen as much as in other states. From 1989 to 2015, the period covered by the study, Californians saw the smallest rate increases, 12.5%, compared with a national average of 61%. 

Like other industries, insurers try to influence policy. State records show the industry has increased its spending on lobbying after major catastrophic events, such as after destructive and deadly wildfires in the state in 2000, 2005, 2013, 2017 and 2018, and after the onset of the COVID-19 pandemic in 2020. In 2021, the industry’s lobbying rose to $9.2 million, up almost $2 million from the year before and the highest amount going back two decades. 

Meanwhile, the department of insurance, the insurance industry, consumer advocates and the drivers who spoke with CalMatters agreed on one thing: It may be harder to find affordable auto insurance right now, but drivers still have options. The auto-insurance marketplace in the state is not the same as the homeowner- and fire-insurance marketplace, and with a couple of exceptions, auto insurers are not leaving the state. For example, some Farmers auto insurance customers recently received notices of non-renewal, but that applies to just one of its brands. Those customers are being steered to other Farmers brands.

“We urge consumers to contact us,” said Soller, of the insurance department. “Are there companies who can get them a better price? Or are there issues that we should look into?”

Click here to read the full article at CalMatters

Farmer’s Joins Insurance Exodus from California

Another major insurance company — Farmer’s — will stop providing many insurance policies in California, joining an exodus of insurers from the state.

The San Francisco Chronicle reported Monday:

Farmers Direct Property and Casualty Insurance Company will withdraw from all insurance programs offered in California, including home, auto and renters policies. Most of the policyholders with Farmers Direct will get “soft-landing offers,” which will resemble renewals in another Farmers company, according to Michael Soller, deputy insurance commissioner. He estimates there will be only about 2,800 Farmers Direct policyholders who may not get an offer.

In July, Farmers Insurance capped the number of policies it would write each month due to “record-breaking inflation, severe weather events, and reconstruction costs continuing to climb,” according to the company. It made a similar move in Florida, another coastal state heavily impacted by severe weather.

Click here to read the full article in BreitbartCA

Consumer group says records show California insurance commissioner drafted proposed market fix with industry lobbyists

Some insurance companies have cancelled homeowners policies or refused to write new policies

A consumer group says that it has proof that California’s Department of Insurance consulted with industry lobbyists in drafting a proposed overhaul to the state’s troubled home insurance market announced last month.

But in an unusually caustic response, state insurance officials claim the consumer group is the one benefitting from a broken system.

Through a public records request, the group Consumer Watchdog obtained emails of draft language for a proposed bill that state insurance officials exchanged with insurance lobbyists in late August during a failed closed-door legislative effort to address the insurance market.

The three emails to and from Deputy Insurance Commissioner Michael Martinez also included representatives of the governor’s office and legislative leaders. The legislation never materialized, but the proposed changes in the emails are similar to an overhaul that Commissioner Ricardo Lara later announced Sept. 21.

“These documents prove Commissioner Lara’s deal with the insurance industry is an outrageous fraud on the public that will make Californians pay vastly more for insurance but not get more people insured,” said Consumer Watchdog Founder Harvey Rosenfield, author of an initiative that set the state’s insurance framework.

The commissioner’s office in turn accused Consumer Watchdog of seeking to protect a regulatory system that the consumer group’s founder crafted and benefits from financially by contesting insurance rates that remain below market and have left many homeowners unable to obtain coverage.

“Watchdog is turning a blind eye to consumers’ needs while defending its own insurance piggy bank,” Deputy Insurance Commissioner Michael Soller said in a statement.

After a series of destructive wildfires in recent years, several insurance companies cancelled coverage of California homeowners in and around regions of high fire risk, including many parts of the Bay Area, forcing them to buy pricey, minimal coverage policies through California’s last-resort FAIR Plan, where participation has doubled. Some of the state’s biggest insurers, including State Farm, Farmers and Allstate, have capped or limited new policies. And homeowners who remain covered have seen rates soar.

Insurers blame the state’s regulatory framework. They say that approval for requested rate increases takes too long, and revenue hasn’t kept up with rising costs and risks. They have urged changes that would allow companies to factor in computerized catastrophe modeling and the costs of “reinsurance” policies covering their risks into rates.

The records provided to Consumer Watchdog include draft bill language that Martinez sent to eight industry lobbyists and copied to the governor’s staff, Assembly speaker, Senate leader and legislative insurance committees. Two other documents sent from an industry lobbyist to Martinez suggested tweaks to the bill language.

The draft bill included language the industry had sought allowing catastrophe modeling and reinsurance costs to be factored into rates, and other provisions that would help the industry ensure solvency of the privately run FAIR plan, created through state legislation. It also included a commitment from insurers that 85% of their statewide market share would be in high wildfire risk communities, though the bill language provided that the commissioner could allow exceptions. The bill never emerged by the mid-September legislative deadline.

But on Sept. 21, Lara hastily called a news conference after Gov. Gavin Newsom announced an executive order urging him to take swift action to fix the state’s spiraling insurance market. He announced what he called the state’s largest insurance reform since voters passed Rosenfield’s Proposition 103 nearly 35 years ago, which he said he would develop over the next year.

The plan would include new rules for the review of climate catastrophe models and incorporating California-only reinsurance costs into rate filings, as well as changes to the FAIR Plan to prevent it from going bankrupt in case of an extraordinary catastrophic event. It also included plans to improve rate filing procedures and timelines including “intervenor reform.”

Rosenfield said the plan the commissioner sketched out in concept reflects the draft bill Lara’s office shared privately with insurance lobbyists. And Rosenfield said that proposed bill included troubling details likely to emerge in the plan Lara’s now working on that weren’t mentioned at his news conference.

Among them, the commissioner could waive the provision requiring an insurer to provide 85% of its coverage in high wildfire risk areas if the company says it’s not possible, weakening a key industry concession in exchange for looser rate regulation. Other language would allow insurance companies currently responsible for FAIR Plan losses to recover those costs through surcharges to all their insured property owners.

Soller said the insurance commissioner has sought input over the past four years at hundreds of town halls and forums with homeowners, consumers, farmers and business owners across the state. And he said the department will post opportunities for further public comment on its website as regulatory changes are developed over the coming year.

Click here to read the full article in the Mercury News

Wildfire-prone California to consider new rules for property insurance pricing

California will let insurance companies consider climate change when setting their prices, the state’s chief regulator announced Thursday, a move aimed at preventing insurers from fleeing the state over fears of massive losses from wildfires and other natural disasters.

Unlike other states, California does not let insurance companies consider current or future risks when deciding how much to charge for an insurance policy. Instead, they can only consider what’s happened on a property in the past to set the price.

At a time when climate change is making wildfires, floods and windstorms more common, insurers say that restriction makes it difficult to truly price the risk on properties. It’s one reason why, in the past year, seven of the top 12 insurance companies doing business in California have either paused or restricted new business in the state.

On Thursday, California Insurance Commissioner Ricardo Lara said the state will write new rules to let insurers look to the future when setting their rates. But companies will only get to do this if they agree to write more policies for homeowners who live in areas with the most risk — including communities threatened by wildfires.

“Modernizing our insurance market is not going to be easy or happen overnight. We are in really unchartered territory and we must make difficult choices when the world is changing rapidly,” Lara said at a news conference.

The rule change could mean higher rates for homeowners who are already seeing dramatic increases. Eight insurance companies doing business in California have requested rate increases of at least 20% or higher this year, according to the California Department of Insurance.

Harvey Rosenfield, founder of the advocacy group Consumer Watchdog and author of a 1988 ballot proposition that regulates insurance rates, said Lara’s announcement “will dramatically increase homeowner and renter insurance bills by hundreds or even thousands of dollars.”

But Lara said looking to the future to set rates doesn’t have to always be pessimistic. Insurers can also consider the billions of dollars the state has spent to better manage forests and the improvements homeowners have made to their homes to make them resistant to wildfires — all things insurers aren’t allowed to consider when setting rates under the current rules.

“Insurers have advanced a very powerful argument that the past is not as good a predictor of the future as it used to be,” said Amy Bach, executive director of United Policyholders, a national insurance consumer organization. “I think the (Insurance) department did what it needed to do to try to restore a viable market. We don’t have a viable market right now in this state in a lot of areas.”

California isn’t the only state that’s struggled to keep home insurance companies amid natural disasters. Officials in Florida and Louisiana, which deal with hurricanes and flooding, have fought to keep companies writing policies. A recent report from First Street Foundation said about one-quarter of all homes in the nation are underpriced for climate risk in insurance. Florida allows insurers to consider climate risk with restrictions. States with less regulated insurance markets have insurers who build current and future events into their models.

Wildfires have always been part of life in California, where it only rains for a few months out of the year. But as the climate has gotten hotter and dryer, it has made those fires much larger and more intense. Of the top 20 most destructive wildfires in state history, 14 have occurred since 2015, according to the California Department of Forestry and Fire Protection.

Insurance companies have responded by not renewing coverage for many homeowners who live in areas threatened by wildfires. When that happens, homeowners who need insurance must purchase it from the California Fair Access to Insurance Requirements (FAIR) Plan. All insurance companies doing business in California must pay into a fund to provide coverage from the FAIR plan.

People with mortgages often have to buy home insurance because their lender requires it. The number of people on California’s FAIR plan nearly doubled in the five years leading up to 2021, and that number has almost certainly increased even more in the past two years.

Lara said his plan is to require insurance companies to write policies for no less than 85% of their statewide market share in areas at risk for wildfires. That means if a company writes policies for 20 homes, it must write 17 new policies for homeowners in wildfire-distressed areas — moving those people off of the FAIR Plan.

“This is a historic agreement between the department and insurance companies,” Lara said.

The American Property Casualty Insurance Association, which represents insurers, called Lara’s actions “the first steps of many needed to address the deterioration” of the market.

“California’s 35-year-old regulatory system is outdated, cumbersome and fails to reflect the increasing catastrophic losses consumers and businesses are facing from inflation, climate change, extreme weather and more residents living in wildfire prone areas,” Denni Ritter, vice president for state government relations, said in a statement.

Jeremy Porter, a co-author of the First Street Foundation report on climate risk, said allowing insurers to consider climate change in their pricing might lead to more competition in the state’s insurance market.

“If this is implemented correctly, this would definitely allow insurers to come back into the market in California,” he said.

Some consumer groups, including Consumer Watchdog, say they are not opposed to insurance companies using a model to look to the future to set their rates. But they want to see what is in that model. It’s not clear if California’s new rules will allow that. State regulators will spend much of the next year deciding what the rule will be.

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