California insurance companies are in a crisis - expensive solutions for homeowners

California insurance companies are in a crisis - expensive solutions for homeowners

Lynne Levin-Guzman is in the front yard of her 90-year-old parents' house in Los Angeles County, California, and tries to protect the house with a garden hose-because the insurance company no longer does so. "I know that I shouldn't be here, but that's my parents' home, and they have lost their fire insurance. So they have to be canceled. So they have to handle it," she told the CNN partner kabc . "You have been living in this house for 75 years and always had the same insurance, and this insurance company has decided to terminate your fire insurance."

insurance problems in California

"And you wonder why people leave California," she added. The experience of Levin-Guzman and her parents is becoming increasingly common. Between 2020 and 2022, insurance companies rejected the renewal of 2.8 million household insurance in the state, according to the latest data from the California Ministry of Commerce for Insurance. This includes 531,000 in Los Angeles County, where Wicking .

Some of these policies have not been extended by home owners, according to a specialist group in the insurance industry. However, the majority of the policies were terminated by the insurers.

growing challenges

This problem has further tightened in recent years, say the state insurance officer Ricardo Lara and consumer groups. Insurers in California refuse to exhibit new policies in areas that they consider to be highly at risk of fire.

This has forced some homeowners to get by without fire insurance or to use a state program - without the support of taxpayers - which is known as California Fair Plan. These policies have higher premiums than traditional private insurance and offer less protection, so that homeowners often have to acquire additional "wrap-around" insurance companies at an even higher price.

The increase in demand for fair plans

Although fair is intended as an emergency insurance, the demand for these policies has increased significantly. The scope for residential buildings had risen by 61 % to $ 458 billion in September compared to the previous year and has even tripled in the past four years. The exposure to commercial policies has also increased faster, almost doubled to $ 26.6 billion in September and has increased by 464 % in the past four years.

The California Fair Plan tried to assure concerned home owners that he would be able to cope with the demands that would create the massive fires this week. "The fair plan, which is mainly disaster insurance, is actively prepared and actively served customers who have asserted claims," it said in an explanation on Wednesday.

new insurance regulations announced

In order to offer home owners in high -risk areas an alternative to the California Fair Plan, the California Department of Insurance announced two weeks ago new regulations that aim to make private insurers to issue policies in fire -prone areas of the state. The guideline is intended to make private insurers withdraw a large part of the cover that is currently being taken over by California Fair Plan.

The rules will require that insurers issue policies in fire -prone areas that make up at least 85 % of their market share throughout the state.

criticism of the new guidelines

However, the directive also grants the insurers something that they have been looking for for years: the possibility of incorporating the costs of reinsurance in their calculations for the premiums. California was the only state that did not allow this. The costs for reinsurance increase due to the risks caused by climate change and the increasing costs of claims for damage, due to inflation that drives the prices for workers, wood and other raw materials.

As a result, it is very likely that the premiums of private insurers will increase as a result of this new guideline.

The position of the insurance industry

The Insurance Information Institute, a specialist group in the insurance industry, supports the new rules and argues that this is the best solution to enable its members to insure the fire -prone part of the market that needs the most support. While the statistics of the industry show that it has been profitable in California in recent years, she says that massive losses in 2017 and 2018 by forest fires have more than consumed for profits and the costs continue to increase, which would require an increase in insurance premiums.

"We have seen that the costs for reinsurance have increased due to climate risks and also due to inflation," said Janet Ruiz, spokeswoman for III. California is the only state that did not allow these costs to be included in the premium calculations, added.

Although some homeowners who were forced to use the fair plan, could find private insurance again, it is still uncertain whether their premiums will fall, even if the tariffs are higher than before.

conclusion: rising premiums and uncertainties

Lara admits that the insurance costs have exploded and that inflation is even a bigger problem than climate change, which must be taken into account in the premium calculation. Consumer Watchdog, on the other hand, expresses that the industry in California is profitable even without these new rules and that insurance companies should be obliged to issue policies for those who have lost protection without changing the basis of the calculation.

Regardless of the insurers' claims that the industry in California is on the verge of a catastrophe, there are similar concerns among the homeowners who urgently need protection.