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Does California’s Home Insurance Crisis Affect Home Buyers? (2024 Update):

Does California’s Home Insurance Crisis Affect Home Buyers? (2024 Update):

home insurance california
home insurance crisis

California’s “Home Insurance Crisis”

Over the past few months, California has been experiencing what many are calling: a “home insurance crisis.” Over the past 5 years, raging wildfires in California have destroyed nearly nearly 10 million acres of forest and 39,000 homes. These wildfires caused unprecedented loss and damage to California residents. The large-scale destruction of California homes, caused an influx in insurance claims, resulting in a home insurance crisis.

At a time when homeowners insurance is more necessary and more in demand than ever, many carriers have withdrawn coverage in parts of California. Many California residents, specifically those at risk of wildfire damage, have no home insurance options to protect their property.

Over the past 6 months, many of California’s largest home insurance providers stopped selling new policies, or limited coverage. These providers include State Farm,Allstate, Farmers Insurance, and Safeco. 

home insurance crisis

When did the crisis begin?

Although 2017 and 2018 saw the largest repercussions of the California WIldfires, it was in 2019 that matters spiraled downhill. In 2019, the California Home insurance crisis reached a tipping point, with over 230,000 policies not renewed. In response to the surge in nonrenewals and FAIR Plan policies, the California Department of Insurance issued 25 moratoriums since 2019. These moratoriums bar insurers from canceling or nonrenewing policies in wildfire-adjacent areas for up to one year.

Although the moratoriums were issued intending to assist homeowners suffering from wildfire damage, they were ineffective. This is because the moratoriums did not address an important California Law- Proposition 103.

home insurance crisis

What is California’s Prop 103?

Generally, the way a home insurance agency remains profitable year-to-year is by requesting a rate increase to compensate for losses. The home insurance company will submit a request through a state’s insurance department, and if approved, they can then increase their average statewide policy.

Proposition 103 is a California law passed in 1988. It requires insurance companies to justify rate increase requests for future wildfire losses based on their average annual wildfire losses over the last 20 years. But, the problem arises when the damage in the past 5 years is far greater than the previous 15 years. In other words, a justifiable rate increase according to Proposition 103 is far below what insurers need to take on more risk and more policies. 

The home insurance industry wants to include actuarial projections of future losses and the costs of reinsurance in their premiums. But, in California, following Proposition 103, neither factor may be considered. This is causing many insurance agencies to disengage from the California scene to protect themselves. But even if these considerations were to be approved (as in discussion right now), it would pose a great financial strain on homeowners, as their home insurance rates would increase drastically. Right now, homeowners are finding it difficult to source good home-insurance plans in California.

home insurance crisis

The Effect of Inflation and Supply Chain Issues on Home Insurance:

Residential construction costs are up roughly 34% since 2019 due to ongoing supply chain issues and labor shortages, further complicating matters for California insurers and homeowners.

This affects the home insurance crisis as well. Increasing the rebuild cost of homes increases the insured value as well. This causes higher average claim payouts and loss ratios. Supply chain issues extend the amount of time it takes to make repairs or rebuild a home, while also driving up costs.

For consumers, inflation has caused a majority of U.S. homeowners to be underinsured or without enough insurance coverage to completely rebuild their homes after a disaster. And it’s also caused home insurance prices to soar, as many policies were updated to reflect the higher cost of rebuilding. Last year, California homeowners saw their premiums increase an average of 9.9% at renewal.

home insurance crisis

What is the CA FAIR Plan?

The FAIR Plan is California’s “insurer of last resort,” offering a bare-bones residential policy with high premiums. The California FAIR plan covers fire and smoke damage but forces homeowners to purchase an additional policy at an increased cost to have coverage for liability, water damage, and other common perils. In 2019, following the heavy losses caused by the wildfires of 2017 and 2018, new policies written under the California FAIR Plan increased by 219%. In November 2023, a state judge revised the CA FAIR plan to include more coverage for theft, water damage, liability, and more. 

California’s FAIR Plan is a last-resort option therefore the association recommends that California homeowners apply for private homeowners insurance several times before applying for FAIR Plan coverage.

home insurance crisis

Advice From Sheri Bienstock:

In this changing and challenging climate, hiring a knowledgeable experienced professional guide to handle the entire real estate process is more integral and valuable than ever. As experts in Los Angeles real estate, we guide buyers through the entire home buying and selling process, including sourcing the best homeowners insurance policy for the newly purchased home. We love what we do, which is fiercely protecting our clients’ interests from start to finish every time. We’ll guide you throught the process of finding the right insurance agent who can guide you to the home insurance plan that suits your specific needs!

Sheri

About The Bienstock Group:

THe BIenstock Grouo

The Bienstock Group, led by Sheri Bienstock, is an expert real estate group in Los Angeles, Hancock Park, and Miracle Mile. Sheri is committed to her clients and will invest all her effort to get you the best results possible. Sheri has 235+ five-star reviews on Zillow, and has been ranked #1 listing agent in 90036 since 2009 and in Hancock Park since 2016.

Have questions regarding rent control in California? Call usanytime and we’d be happy to address all your real estate needs!

323-310-2525

California’s “Home Insurance Crisis”

Over the past few months, California has been experiencing what many are calling: a “home insurance crisis.” Over the past 5 years, raging wildfires in California have destroyed nearly nearly 10 million acres of forest and 39,000 homes. These wildfires caused unprecedented loss and damage to California residents. The large-scale destruction of California homes, caused an influx in insurance claims, resulting in a home insurance crisis.

At a time when homeowners insurance is more necessary and more in demand than ever, many carriers have withdrawn coverage in parts of California. Many California residents, specifically those at risk of wildfire damage, have no home insurance options to protect their property.

Over the past 6 months, many of California’s largest home insurance providers stopped selling new policies, or limited coverage. These providers include State Farm,Allstate, Farmers Insurance, and Safeco. 

home insurance california

When did the crisis begin?

Although 2017 and 2018 saw the largest repercussions of the California WIldfires, it was in 2019 that matters spiraled downhill. In 2019, the California Home insurance crisis reached a tipping point, with over 230,000 policies not renewed. In response to the surge in nonrenewals and FAIR Plan policies, the California Department of Insurance issued 25 moratoriums since 2019. These moratoriums bar insurers from canceling or nonrenewing policies in wildfire-adjacent areas for up to one year.

Although the moratoriums were issued intending to assist homeowners suffering from wildfire damage, they were ineffective. This is because the moratoriums did not address an important California Law- Proposition 103.

What is California’s Prop 103?

Generally, the way a home insurance agency remains profitable year-to-year is by requesting a rate increase to compensate for losses. The home insurance company will submit a request through a state’s insurance department, and if approved, they can then increase their average statewide policy.

Proposition 103 is a California law passed in 1988. It requires insurance companies to justify rate increase requests for future wildfire losses based on their average annual wildfire losses over the last 20 years. But, the problem arises when the damage in the past 5 years is far greater than the previous 15 years. In other words, a justifiable rate increase according to Proposition 103 is far below what insurers need to take on more risk and more policies. 

The home insurance industry wants to include actuarial projections of future losses and the costs of reinsurance in their premiums. But, in California, following Proposition 103, neither factor may be considered. This is causing many insurance agencies to disengage from the California scene to protect themselves. But even if these considerations were to be approved (as in discussion right now), it would pose a great financial strain on homeowners, as their home insurance rates would increase drastically. Right now, homeowners are finding it difficult to source good home-insurance plans in California.

home insurance california

The Effect of Inflation and Supply Chain Issues on Home Insurance:

Residential construction costs are up roughly 34% since 2019 due to ongoing supply chain issues and labor shortages, further complicating matters for California insurers and homeowners.

This affects the home insurance crisis as well. Increasing the rebuild cost of homes increases the insured value as well. This causes higher average claim payouts and loss ratios. Supply chain issues extend the amount of time it takes to make repairs or rebuild a home, while also driving up costs.

For consumers, inflation has caused a majority of U.S. homeowners to be underinsured or without enough insurance coverage to completely rebuild their homes after a disaster. And it’s also caused home insurance prices to soar, as many policies were updated to reflect the higher cost of rebuilding. Last year, California homeowners saw their premiums increase an average of 9.9% at renewal.

home insurance california

What is the CA FAIR Plan?

The FAIR Plan is California’s “insurer of last resort,” offering a bare-bones residential policy with high premiums. The California FAIR plan covers fire and smoke damage but forces homeowners to purchase an additional policy at an increased cost to have coverage for liability, water damage, and other common perils. In 2019, following the heavy losses caused by the wildfires of 2017 and 2018, new policies written under the California FAIR Plan increased by 219%. In November 2023, a state judge revised the CA FAIR plan to include more coverage for theft, water damage, liability, and more. 

California’s FAIR Plan is a last-resort option therefore the association recommends that California homeowners apply for private homeowners insurance several times before applying for FAIR Plan coverage.

mid wilshire

Advice From Sheri Bienstock:

In this changing and challenging climate, hiring a knowledgeable experienced professional guide to handle the entire real estate process is more integral and valuable than ever. As experts in Los Angeles real estate, we guide buyers through the entire home buying and selling process, including sourcing the best homeowners insurance policy for the newly purchased home. We love what we do, which is fiercely protecting our clients’ interests from start to finish every time. We’ll guide you throught the process of finding the right insurance agent who can guide you to the home insurance plan that suits your specific needs!

Sheri

About The Bienstock Group:

THe BIenstock Grouo

The Bienstock Group, led by Sheri Bienstock, is an expert real estate group in Los Angeles, Hancock Park, and Miracle Mile. Sheri is committed to her clients and will invest all her effort to get you the best results possible. Sheri has 235+ five-star reviews on Zillow, and has been ranked #1 listing agent in 90036 since 2009 and in Hancock Park since 2016.

Have questions regarding rent control in California? Call usanytime and we’d be happy to address all your real estate needs!

323-310-2525

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