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Will California Become Uninsurable?  Golden State Takes Center Stage in New Insurance Crisis

People looking at burned out home

Property and business owners in California already face a number of nerve-wracking hazards, not just limited to the well-known issues of wildfires and earthquakes.  Now, owners are dealing with another hazard becoming more and more prevalent: The inability to insure their property.

In May, major insurer State Farm announced it will no longer accept new applications, including business and personal lines property and casualty insurance – a huge blow to property and business owners in fire-prone zones looking to protect their investment.

While Californians have been familiar with scarcity and limited coverage when it comes to earthquake insurance, fire insurance was always available, albeit becoming more and more expensive.  State Farm’s move joins other in the space eliminating the option for coverage all together, meaning potential policyholders have one less option.  Other carriers including Nationwide, Tokio Marine and Oregon Mutual have either reduced or paused coverage in the state or withdrawn coverage completely.

The Independent Insurance Agents and Brokers of California (IIABCal), a non-profit advocacy group for the insurance industry, has responded quickly to this latest news, telling members that it is “redoubling its efforts to press legislators and the state Insurance Commissioner to take steps necessary to reopen property insurance markets.” 

Without adequate carrier options, policy holders may find themselves forced into substandard coverages or bare bones policies that do not truly reflect the needs of a potential claim or loss.  Reduced providers also means an increase in fees as less carriers mean less competition.  Brokers and agents will be faced with the daunting task of attempting to secure coverage that is either cost prohibitive or simply unavailable for many clients.

In addition to its legislative efforts, IIABCal is working to create a coalition of non-insurance organizations such as the California Association of Realtors, the California Farm Bureau and the California Building Industries Association that also will see their membership suffer with less options.

So what can truly be done?  If carriers feel California is a market that is simply unsustainable long-term, they will continue to flee.  To further bolster the insurance industry in the state and provide stability, the IIABCal has a four-part platform it is advocating with lawmakers:

1.) Giving insurers credit for reinsurance costs

2.) Allowing insurers a higher cost-of-capital credit for catastrophic wildfire exposures

3.) Permitting insurers to use empirical models to project potential future losses

4.) Requiring the California Department of Insurance to expedite its review of rate increase requests

The fact is right now California residents are seeing their insurance options dwindle; many are stuck with the California FAIR Plan or unregulated surplus providers, which are both high on price and low on limits and coverage, a lose-lose for any customer.

Be sure you are up to date on all your coverages and set a time with your broker or agent to review your carriers and discuss which ones may be at risk for pulling out of the state or limiting your options.  Review potential alternate carriers now so you are educated if you need to make an unwelcome decision in the future.

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