Homeowner insurance premiums aren’t so bad here in California — but coverage is hard to find

Homeowners’ insurance is necessary to protect what is, for most people, the biggest asset in their portfolio. Without it, an accident or natural disaster can wipe it out completely, leaving them without shelter.

Naturally, coverage comes with a cost, called premiums  — and homeowners are seeing this cost increase significantly.  One might call it the climate-change inflation factor now calculated into insurance premiums.

Nationally, home insurance premiums increased 21% from 2021 to 2022, up from a 12% annual increase in the prior year, according to Policygenius.

At the state level, regions where natural disasters are becoming increasingly common saw the biggest jumps. For example, premiums jumped a whopping 68% over the past two years in hurricane-laden Florida.

Here in California, the average home insurance premium increased 11% from 2021 to 2022, amounting to an average annual increase of $117.

However, many insurers have simply abandoned California in recent months, since they refuse to insure homes in the wildfire-prone state. This includes major insurers who have either stopped or limited homeowners’ and renters’ insurance offerings, like:

• USAA;
• Farmers;
• Allstate; and
• State Farm.

Thus, California homeowners will continue to see home insurance premiums rise as they are left with fewer choices — as we know, reduced competition trends toward higher prices. (Often, that is the intended result of dropping out of a market, to return when premiums are juicer).

And yet, how did California — a state with notoriously high wildfire activity and now with fewer insurance options — pull off a (relatively) low 11% annual increase?

Related article:

Homeowners impacted by wildfires receive insurance protection

California’s home insurance laws butt up against the private market

The answer lies in California legislation to limit insurance premium increases — a practice that both benefits homeowners by keeping premiums from skyrocketing, and harms consumers since fewer insurers are willing to play ball.

Proposition 103 was passed back in 1988 to limit annual insurance premium increases to no more than 7%. The only way around this is to go through an arduous approval process with the California Department of Insurance.

Thus, most insurers have been unable to increase premiums to match the rise in their costs to cover insured homeowners and renters impacted by California’s recent spate of wildfires and flooding. Further, emergency legislation is often passed in the aftermath of a major wildfire season to prevent insurers from not renewing insurance plans.

Fed up and with dwindling reserves, insurance providers are quietly exiting the state.

As a result, homeowners and renters alike are seeing their insurance options shrink dramatically.

In a last-ditch effort to win back fleeing insurance companies, California’s Governor issued an executive order in September 2023. This order calls for the Department of Insurance to:

• adjust the insurance rate approval process to account for the increased risk of natural disasters since Prop 103 was originally passed (that climate-change inflation factor mentioned earlier);
• improve the efficiency and transparency of the rate approval process; and
• make it the Department’s goal to ensure long-term availability of property insurance options for Californians.

While the order doesn’t make any immediate or real changes to insurance options, it points to probable legislation to address Prop 103’s shortcomings in 2024. Keep an eye on firsttuesday’s Legislative Gossip page for more.

Real estate agents: are your clients able to find sufficient homeowners’ insurance coverage to close purchase transactions? Is this becoming a problem in the homebuying process and killing deals? Share your experience — and solutions — with other agents in the comments below!

Related article:

Nine-in-ten homebuyers weigh climate risks when choosing a home