California’s Growing Insurance Crisis — Homeowners & Auto

State Farm, Farmers and Allstate and other insurers have completely stopped writing homeowners insurance policies or they’re pulling back.

Or both.

A big part of the why has to do with wildfires. Insurers just can’t afford the risk in some areas. The rest of the story has to do with politicians past and present pushing to keep California’s insurance premiums “affordable.”

They’ve succeeded as the state ranks among the states with the lowest average homeowner and auto insurance rates.

These days those the credit — or should we say, blame — lands at the feet of Governor Gavin Newsom and California Insurance Commissioner Ricardo Lara, and the more liberal members of California’s Senate and Assembly past and present.

A rumor is now floating about news circles that says Newsom, Lara and other leaders of California’s Legislature are nearing a deal with insurers that will let prices rise to a place where they offset risk.

The goal — says California Democrat Sen. Susan Rubio and head of the Senate’s Insurance Committee — is to get insurers like State Farm back in the state and keep them there, and to keep others from leaving. “We turned a corner,” Rubio said. “We’re, all of us, in a strange way, on the same page.”

She and others in the Legislature are looking at introducing a bill to allow insurers to charge all policyholders a fee to cover more risky properties. It will also let insurers use “forward-looking” rating models that include models that allow for increases because of natural disasters.

“Everything’s on the table, and I don’t rule out something being done,” Rubio said.

If this bill passes and is signed into law by the governor, it is going to — no doubt — raise rates for consumers, and cause pain to elected officials at election time. They’ll be open to attacks from consumer advocates who have a lot of political influence — and enough of it to keep the rates in California among the lowest in the country.

That said, with the withdrawal of insurance companies from the market, and a 20% drop in available insurance options, there is a lot of understanding by the people, and others in power, that the time may have come for a change.

“That was the alarm bell that’s going off right this second,” Rubio said. “We are in a crisis and something needs to be done.”

It also doesn’t hurt that many of those in California’s Legislature are being impacted by the loss of insurance options. Democratic Sen. Marie Alvarado-Gil has been forced to get insurance from the state’s FAIR Plan, the insurer of last resort. She says it’s been inconvenient.

And she’s not alone, Alvarado-Gil is always hearing from others with the same problem.

“There isn’t a day that goes by that I don’t hear from my constituents directly about the impact of the insurance industry and wildfires on their homes,” she said at a hearing earlier this year. “I cannot go through another fire season without having solutions for our businesses, for our homeowners, for our renters, for our farmers.”

Newsom and Lara are said to be involved in talks on how this legislation pens out. At a public hearing held last month, Lara said he is open to allowing forward-looking rate models and said will pursue legislative action to make that happen if the need arises.

It may if Consumer Watchdog founder, Harvey Rosenfield has his way.

“When people start tearing open their bills, and they see a 30 percent increase or 40 percent increase in their homeowner insurance rates, which is what would happen almost overnight if some of the industry got its way, I think there’d be another voter revolt in California,” Rosenfield said.

And then there’s auto insurance.

California motorists are now seeing rising rates and — in some cases — insurers ceasing to write policies altogether or, at the very least, limiting coverages. The why — says Jerry Becerra, who heads up Barbary Insurance Brokerage — is because auto insurers have been struggling for years to keep their heads above water.

“A lot of companies are running a more than 100% loss ratio,” Becerra told KTVU-TV. “So that’s unsustainable over the long-run.”

We all know the reasons; a growing number of accidents and increasing costs for collision repairs driven by supply line issues, labor shortages and inflation.

Another issue insurers have that most insureds don’t know about is the ongoing battle with Commissioner Lara over rates. He froze them during the pandemic and hasn’t allowed them to increase since.

The American Agents Alliance finally had enough and recently asked the California Department of Insurance (CDI) to fast-track the review process because the auto insurance market is in turmoil.

The group’s executive director, Mike D’Arelli said the market needs to be stabilized and sooner rather than later. “They [insurance companies] are losing money on every piece of business, and ‘when you’re in a hole, stop digging’ is their approach to the marketplace in California right now,” he said.

Becerra said the only real option for consumers now is the non-standard market.

“If you can’t write business property in the standard market, and you stop writing, then the only market left are non-standard markets. And they may not be able to provide right coverage and with the rate increases it’s much higher, so it could get pretty bad,” he said. “So I think something needs to be done. The first thing is the insurance commissioner needs to work diligently to alleviate the needs.”

The California Department of Insurance — at that point — chimed in and sent an explanation to KTVU TV.

“While insurance companies are focused on increasing rates, the Department of Insurance is focused on protecting drivers and helping them get the most value from the premiums they pay,” a department spokesperson said. ”Our staff continues to review pending auto insurance rate filings with a goal of giving consumers the best value, the most choices, and to make it right for consumers who were and continue to [be] overcharged on premiums during the pandemic.”

Source link: Politico —

Source link: KTVU TV —

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