SACRAMENTO, Calif. — California’s housing market affects the state’s entire economy and everyone from homeowners to renters.
Right now, however, an insurance crisis is threatening to destabilize all that. Homeowners insurance is increasingly unaffordable and unavailable.
In response, as ABC10 has reported, California Insurance Commissioner Ricardo Lara announced some major changes, which he calls the Sustainable Insurance Strategy. That was back in September, and he set a deadline for Dec. 2024.
Two months after that announcement, what has changed? ABC10 has been tracking this growing crisis for years now and spoke 1-on-1 with Commissioner Lara.
“We're at a critical stage, when it comes to the availability and affordability of insurance,” Lara said. “Having an uninsurable state is not an option.”
If you own a home, you probably have a mortgage. Lenders generally require homeowners to have fire insurance, which we’ll refer to as ‘homeowners insurance’ throughout this story.
In the past two years, most of the major companies in California’s homeowners insurance market have paused or restricted new business, causing availability to plummet and prices to go up.
“We are seeing these tremendous spikes in premiums,” Lara said.
Insurance companies that have explained their reasons for pulling back from doing business in California cite the rising risk of wildfires due to climate change, the increasing cost of materials to rebuild a house and a need for updated state regulations.
“We're seeing the impact of some of the most devastating wildfires in our history, coupled still with the fact that…nobody was expecting this level of inflation, which now really impedes the cost of rebuilding,” Lara said.
With so many companies choosing not to write new homeowners insurance policies, many people are turning to something called the California Fair Access to Insurance Requirements—or FAIR Plan. Known as the ‘insurer of last resort,’ it is increasingly becoming many Californians’ only resort, as private insurers refuse to offer them policies.
“We don't want a FAIR Plan that's growing…We're essentially putting the riskiest homes under the FAIR Plan,” Lara said.
That creates a situation, he said, in which the FAIR Plan might “not be able to afford a future peril.”
Not only is the state-mandated FAIR Plan bare bones, offering just basic fire insurance—it’s also expensive. On top of that, homeowners who can afford it will often purchase additional insurance to cover what the FAIR Plan does not (See the end of this article for tips for people who find their policy canceled, non-renewed or unaffordable).
The growing crisis prompted Governor Gavin Newsom to issue an executive order, urging the insurance commissioner to act quickly. That was September 21, just days after the State Legislature failed to pass a last-minute reform before the end of session.
Hours after Newsom issued that order, Lara held a news conference, where he announced what his department calls the Sustainable Insurance Strategy.
“There’s no doubt that California is at an insurance crossroads,” he said. “This is a comprehensive strategy to modernize our insurance market.”
He told reporters he struck a deal with insurance companies, who – by state law – need the Department of Insurance to approve any rate increases.
For their part, Lara said companies will get several things they’ve been wanting for years. They include a faster, more efficient rate increase review process and an ability to use forward-looking catastrophe modeling to predict risk when justifying their proposed rate increases. Currently, companies can only use the past 20 years’ worth of climate data.
As insurance expert Karl Susman puts it, companies are “trying to find a way to come up with new ways of predicting loss because as long as they can predict loss, then they can properly price products. And if they can properly price products, companies come back. More companies come back, competition ensues. And then at the end of the day, hopefully we're all paying lower premiums - not higher.”
Companies also get to justify their rate increase requests by citing their cost of reinsurance. That's essentially insurance for insurance companies. Prior to this deal, companies have not been able to include those reinsurance costs when explaining why they want the state to approve rate increases. Now, they will be able to - as long as it is reinsurance only for perils occurring in California. Consumers won't be footing the cost for a company's reinsurance that covers other states, Lara said.
So what do consumers get out of this deal?
In exchange for getting these new tools, a company must write 85% of all its homeowners insurance policies in California’s high-risk areas, with the goal of taking those people off the FAIR Plan. Companies must also offer discounts to people who do wildfire mitigation on their property – also known as home-hardening.
“People were saying, ‘I've spent thousands of dollars to mitigate my home, yet I'm still being dropped or I can't find insurance,’” Lara said.
Now, he said, the homeowners who have done that mitigation are going to get priority for getting off the FAIR Plan and back into the private insurance marketplace.
“Now we're actually giving an incentive to homeowners not only financially through my first-ever Safer from Wildfires discounts,” Lara said, "(but also, those homeowners are) going to get rewarded (for) having done that by being taken off the FAIR Plan as quickly as possible.”
Lara said his Sustainable Insurance Strategy should coax companies back into writing new policies in California once more.
Some consumer advocates worry the changes will drive up prices for homeowners. ABC10 asked the commissioner whether things might get worse for consumers before they get better, in terms of the availability and affordability of homeowners insurance.
“I honestly think that we are at a peak,” Lara said. “A lot of these regulations that we're working on, as they're coming into fruition, you're going to now see the industry really coming back, because - like I said - through this agreement, they made it very clear: they want to stay here, they want to continue to grow…You're going to start seeing change, I think, in the next couple of months, hopefully.”
Already, he said his department is hiring more analysts to expedite the process of reviewing companies’ rate increase requests, though the deadline for the full implementation of his new Sustainable Insurance Strategy is December of 2024.
“Now we need to rush and get this done as quickly as possible by December 2024, to give our consumers some relief and some hope that they're going to be able to find insurance in California,” Lara said.
Over in Tuolumne County, Supervisor Ryan Campbell calls the affordability and availability of homeowners insurance a “crisis.”
“Something needs to be done right now,” he told ABC10. “We’re in a crisis in Tuolumne County. We are losing residents.”
He said low-income homeowners don’t have time to wait.
“For people that are on fixed incomes, people that are poor, people that are seniors-- it is just not feasible for them to be able to afford house payments, to be able to afford groceries and also be able to pay $4,000, $5,000 a year for homeowners insurance. It's ridiculous,” he said. “People are going to have to move away from our beautiful communities just because they can't afford fire insurance.”
ABC10 spoke with him outside one of two Resilience Centers Tuolumne County opened a year ago.
“It's a safeguard for emergency events when evacuations are required,” Campbell said.
He said the county has invested in wildfire mitigation efforts on the community level and would like to see insurance premiums – and availability – reflect that.
ABC10 sat down with a group of Tuolumne County homeowners to see how the insurance crisis is affecting them.
Cathy Townsend is on the FAIR Plan after getting dropped by two insurance companies.
“I'm single, divorced. I'm on a fixed income and I don't know what I'll do if I can't afford the house,” she said, tears filling her eyes. “My payment has doubled and I'm not making any more money.”
She recently gave ABC10 an update, saying she changed her deductible in order to make insurance affordable.
Elaine Hagen moved to Tuolumne County in 2014.
“We've been canceled by our homeowners insurance at least five times, possibly six,” she said. “The costs keep going up, and I don't know what folks are going to do. It's just terrifying.”
“I think we all feel angry because you don't know what to do and you don't know where to turn,” homeowner Patti Cherry said.
Mark Dyken owns a home in Calaveras County and runs a homeless shelter called Resiliency Village in Tuolumne County. He said this crisis doesn’t just affect homeowners.
“As these costs go up, people who are right there on that margin now can't afford that house they've had for a long time or their rent goes up because their landlord has to pay for this increased insurance cost,” he said.
Some people ask—why would anyone move to a place like this if the risk is so high?
Jim Schmidt – a former seasonal firefighter with the U.S. Forest Service - has lived in the area nearly 40 years.
“When we moved here, wildfire was not a big deal,” he said, adding the wildfires have grown much more frequent and intense over the decades. “To blame people that live here for moving to a high-risk area is…just not fair, because the conditions changed after we got here.”
Tuolumne County homeowner Larry Beil said he’d like to see more transparency from insurance companies about the models and algorithms they use to decide which houses they’ll insure, “so we can actually plan this neighborhood, we can look in that neighborhood - based on the likelihood of getting insurance rather than the hope of getting insurance.”
Some of the companies still doing business in California are requiring homeowners to do wildfire mitigation – or home hardening – on their property, if they want to keep their policy. Commissioner Lara said companies have to start offering discounts for people who take certain steps.
But those efforts can be expensive.
“Last year alone, we spent over $10,000 doing vegetation mediation,” Patti Cherry said.
Some people still have their policies canceled or non-renewed.
Tuolumne County homeowner Marvin Keshner said he wants the state to establish clear guidelines.
“Then let’s hold them accountable so that if you do it - you spend the money to do it - you get the insurance policy that comes with it,” Keshner said.
Over in El Dorado County, ABC10 first interviewed Laura and Charlie Callahan in 2019. At the time, their premium had quadrupled to $4,200 a year.
“And we’re on a fixed income,” Laura told ABC10.
So in 2020, they decided to leave California altogether and moved to Tennessee.
“It really came to homeowners insurance,” Laura told ABC10 this year, because “we didn't know what the future held for that: if we even were able to get to keep getting insurance much less how much we were going have to pay for it.”
The homeowners insurance crisis is so bad in California, some people – like the Callahans - are leaving the state. Others, like Elaine Hagen, are sticking around and hoping for change.
“I was born here. My great grandparents were here. No, I'm not leaving California,” she said.
This problem, however, isn’t specific to California. Across the nation, for various reasons, insurance companies are raising rates and leaving states, including in Florida, Texas and Louisiana.
It’s such a big problem, U.S. Senators are tackling it. The Budget Committee sent letters to 41 insurance companies, asking where they will next pull coverage or raise premiums. Responses were due on Friday, Nov. 17. The Committee has not yet announced the results of those responses.
WHAT TO DO IF YOUR HOMEOWNERS INSURANCE IS CANCELED, NON-RENEWED OR UNAFFORDABLE
Insurance experts Karl Susman and Aurora Mullett both tell ABC10 they are hopeful Lara's Sustainable Insurance Strategy will make a difference in California's insurance market.
However, they understand many policyholders need relief sooner rather than later.
Mullett is managing partner of Sky Insurance Group, an independent insurance broker based in Rocklin. She recommends consumers be extra-mindful of their coverages right now.
"You can easily become uninsured if you don't have the right advocate by your side telling you exactly what types of what each coverage is going to pay out for you," she said.
If someone finds themselves with no option other than the FAIR Plan, she recommends getting started on that application as early as possible, since the FAIR Plan is seeing about 1,000 applications per weekday. ABC10 confirmed this with the FAIR Plan Association. As of September 2023, a spokesperson said, the FAIR Plan had reached 330,101 policies. Over the summer, the state approved a rate increase for the FAIR Plan. See how that could affect your premium HERE.
"Don't wait until the last minute," Mullett said. "A lot of people on the renewals are doing so much shopping that when they finally realize that the rate is the rate no matter which agent that they're talking to, they only leave themselves with, sometimes, a week. And the California FAIR Plan applications are taking about a week to come back. And then you have the payments and then all of the processing time. So they should give themselves - at a minimum - two weeks before their expiration date to have everything completed with the California FAIR Plan."
Susman suggests somebody look at increasing their deductible if their premium is becoming unaffordable.
"I know a lot of times people are afraid to look at a $10,000 deductible or even higher," Susman said. "My answer is, 'Look, if the house burns to the ground, if you're responsible for $10,000 or $20,000 versus the entire reconstruction cost - that's OK. I know (that's) easy for me to say. It's not my money, but $10,000 is better than the half-a-million or the million dollars you need to rebuild the house. So look for a significantly higher deductible."
He also suggests people who get non-renewed by their carrier ask questions. And if all else fails, complain to the California Department of Insurance. Information on how to do that is HERE.
"Ask the carrier, ask your broker. Find out. Say, 'OK, tell me, specifically, what is it about my risk that has changed since the last time it renewed? That now it's no longer acceptable for your guidelines?'" Susman said. "A lot of times it might be something that you can change… Don't assume just because you get a non-renewal notice that, 'That's it. I'm done' and walk away. Unfortunately, in the market, especially right now, you need to be a little more proactive and reach out to the carrier. Reach out to the agent and ask them, say, 'I got the letter. I know it's a tough market. Tell me what steps can I take to maintain this policy?'"
He said if your insurance carrier or broker tells you to do fire mitigation, get the steps in writing. Document that you’ve done it. Then, if they cancel or non-renew after that, go to the California Department of Insurance.
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