In my November, 2018, I predicted higher homeowner insurance rates were on the way in California. Unfortunately, they have arrived.

The main reasons are:

• California fire losses of more than $20 billion. Carriers are trying to manage their losses by increasing rates in fire zones, but state regulations limit rate flexibility. As a result, carriers are non-renewing some homeowners in fire zones and increasing rates for state residents in areas previously thought to be safe from wildfire.
• Increasing water damage claims. Standard insurance excludes water seepage and floods, but covers sudden and internal damage (like a burst pipe or toilet leak). The frequency of this type of claim has been increasing. Average claims are nearly $100k in high value secondary homes where leaks can cause damage for months before even being noticed.
• Increasing dwelling loss limits. My November newsletter details the difference between market value and rebuild cost. Experience with the fire claims showed that, in general, rebuild insurance limits were too low. Homeowners and perhaps agents failed to anticipate cost inflation, the impact of new building codes and limited building supplier availability in choosing the right limits.

Here are a couple other reasons rates are going up:

• Low base rate. From 2007-2016 California was the 49th out of 50 states in terms of rate increases. Over that period, rates were very stable in California and increasing rapidly in the Midwest (tornado losses) and Southeast (hurricane losses). So now there is a catch-up effect.
• Size of block. Certain carriers like State Farm and Chubb had large established bases of business in California when last year’s fires hit. So compared to new entries their losses were higher and it’s safe to assume they will be more aggressive with rates and renewal decisions in trying to recover.

What does this mean for you:

• Rates cannot be negotiated with carriers. You can try to switch carriers, but rates are generally increasing for all carriers and several carriers have stopped writing new business.
• Do not under any circumstances get mad and pay late or cancel your insurance. Certain carriers are renewing but not writing new business so their response to you might be “good, thanks for that”. Then when you shop for new insurance it might be hard to find.
• Desert Insurance Solutions continues to have access to quality carriers with contracts specifically designed for high-value homes, standard homes, and specialty properties like short-term vacation rentals. For those in fire zones, we offer a limited coverage policy that is a better value than the “last-resort” FAIR plan. We continue to find solutions where other agents can’t.
• I evaluate all the carriers used by Desert Insurance Solutions for financial strength, contract quality, claims performance and pricing value. We do not offer any cheap, low-quality products that will fool people into thinking they have real insurance.