What is driving California’s hard insurance market?
The current California insurance market is a multi-dimensional problem. The following are the primary driving factors:
- The CA Dept of Insurance does not allow for predictive modeling in determining rate, only historical loss data. Despite the past 7 years looking nothing like the 13 years prior.
- Reinsurance companies are raising rates or refusing to renew their contracts with insurance companies. The CA Dept of Insurance does not allow factoring of reinsurance costs into rate modeling.
- Inflation and supply chain issues are driving claims costs up tenfold.
- The California Insurance commissioner is not approving rate increases for insurance companies, despite years of catastrophic losses and inflation.
The above issues are some of the primary reasons the market is in turmoil. They are making it unprofitable to do business in California. As such, insurance companies are tightening underwriting or pulling out of the market entirely.
How does this impact commercial buildings (Apartments, Condo Associations, Lessor’s Risk)? Insurance companies are non-renewing or refusing to write new policies for properties that fall into any of the below categories:
- Buildings over 25 years old
- Any buildings that have the following brands of electrical panels: Stab-lock, Federal Pacific breakers or Zinsco Panels (we highly recommend proactively replacing any of these).
- No documented proof of full replacement of the following – (documented proof includes permits and/or itemized construction receipts)
- Electrical
- Plumbing
- Roof
- HVAC Systems
- Buildings in or near wildfire areas
- Properties that have had prior claims
- Buildings without interior fire sprinkler systems
- Buildings that show lack of maintenance
- Trees overhanging the roof
- Unkept yard
- Damaged or broken windows, railings, trim, or gutters
- Cracked sidewalks or driveways
If you have buildings with any of the above characteristics I recommend budgeting for large increases in premium (up to 200% for the same coverage).
HOW DOES THIS IMPACT RESIDENTIAL HOMES/CONDOS:
Condo Owners: It’s very scary for individuals who live in older condominiums/HOA’s with the characteristics outlined above – especially older HOA’s which don’t have a surplus of funds for rainy days and who have deferred maintenance to their buildings.
Single Family Homes: Insurance companies can now access permit information to see when you did an update to your home, but many people don’t always pull permits. If you do any major updates to roof/electrical/plumbing/HVAC it’s important to keep that information documented and handy as insurance companies are asking for proof.
They are also getting more sophisticated in monitoring properties via satellite/drone photos, so making sure trees are trimmed that overhang properties and pools are full of water, etc. is important. We are getting a lot of homeowners non-renewals because the company has identified an empty pool or a tree overhanging a property or for lack of recent permitted updates (i.e. new roof, not a patch).