I was in Sacramento last year and I overheard this conversation with California’s Insurance Commissioner and his friend Bob.
Insurance Commissioner: “Bob, what can I do to punish consumers as much as possible? I mean, I really want to stick it to them…”
Bob: “Well, this would be really cruel, but you could refuse to let insurance companies charge enough to make money, forcing a mass exodus of insurance companies from CA and thus massively decreasing choice and competition.”
Insurance Commissioner: “Hmmm. That really sounds like fun. But, I was taught in regulator school that my actions have no impact in the marketplace.”
Bob: “Uhhh, sorry Ricardo… they do, and this will inflict enormous pain on consumers…”
OK, OK… I might not have heard that conversation, but it would not surprise me if someone else had because that is exactly what happened in California – and consumers are getting crushed (to the surprise of nobody with the exception of regulators it seems).
Below Is A List Of Insurance Companies That No Longer Issue New Homeowners Policies In California
- State Farm
- Allstate
- USAA
- Progressive (property)
- Nationwide
- National General
- Pacific Specialty
- Stillwater
- Berkshire Hathaway GUARD
- American Modern (effective July)
- Travelers (some restrictions)
- Safeco (some restrictions)
- The Costco Insurance Agency
- Lemonade
Overview Of How We Got Here
1. Wildfires/Claims
- 2017 and 2018 were two of the most destructive fire seasons with a combined claims payout of almost $30 billion.
- Over 39,000 homes were destroyed by fires within the last 5 years alone.
2. Inflation/Increased costs
- The cost to rebuild a home in CA is drastically higher compared to other states while insurance premiums in CA are amongst the lowest in the nation.
- The cost of labor and supply have increased by about 40% during the last couple of years but insurance rates have stayed somewhat the same during that time period.
- This led to insurance carriers paying out more than they were bringing in. The industry average was about $1.85 getting paid in losses for every $1 earned in insurance premiums.
3. Regulatory Environment
- In order for insurance carriers to adjust their rates to match the increased fire risk and higher costs to rebuild homes, they have to go through an approval process with the Department of Insurance.
- This process has been challenging during the past couple of years. Approved rate increases dropped from 71% in 2019 to 29% in 2022.
- There were also a few moratoriums in place barring insurance companies from non-renewing policies in certain areas.
Impact On Homeowners
- Current homeowners should expect to see their home insurance rates increase – often substantially (as most readers know or have experienced), and the increases will likely continue for several years.
- New homebuyers will have far fewer options when it comes to shopping for insurance.
- More customers will find themselves having to get insurance from the CA FAIR Plan (the state-run program). FAIR Plan policies however, tend to be much more expensive than the policies offered by private companies.
What Should Homeowners Do?
- SHOP EARLY: We highly recommend that homebuyers start shopping for insurance as early as possible to avoid delays to the closing date and to avoid sticker shock. Far too many homebuyers are way too cavalier about insurance, waiting until the last minute to find it. It is now, however, more important than ever to shop early.
- BUDGET ACCORDINGLY: Homebuyers should expect to pay much more for insurance in California now.
- CHECK QUALIFICATION AMOUNT: Homebuyers should check with their lender to see how much higher insurance costs will impact their max qualification amount.
- USE A LOCAL BROKER. Fortunately, there are still companies writing new policies in California, including Bamboo, Hippo, CSE, Travelers, Safeco, Farmers, Mercury, Aegis, and Universal North America.
Who Does JVM Recommend For Homeowners Insurance Now?
We refer borrowers to a few providers, but a standout is Abdullah Al-Hadeethi, as he is extremely professional, polished, and responsive. He is also a broker with access to numerous providers, and about 90% of this blog was written verbatim by him – with the exception of the fake conversation at the beginning of this blog (I don’t want to get him in trouble with regulators 😊).
- Abdullah Al-Hadeethi; Goosehead Insurance; Agency Owner; (573) 592-9665; abdullah.alhadeethi@goosehead.com
- Antonio Banuelos-Cruz; Banuelos Insurance Solutions (Farmers); (925) 258-1010; pedro.jbanuelos@farmersagency.com
- Kevin Hennessy; Farmers Insurance; (925) 944-3588; khennessy@farmersagent.com
Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
