December 26, 2024

The 2025 California Insurance Market

The year 2024 turned out to be really challenging year for insurance in the state of California. We are hoping that 2025 might turn out a just a little bit better. There was some hope that the risk management troubles in this state from 2023 would end in 2024. However it does not seem to have turned out that way. MIS LLC is hoping for a better 2025.

For 2025 Marindependent Would Love to see the following:

• A realistic legislative solution for the admitted property insurance market
• Relaxation of many of the onerous new underwriting standards for older buildings
• Increased capital and capacity with nonadmitted insurers
• A reinvigorated excess lines market
• Calm and Staid claims environment

2024 Issues Heading into 2025:

Around December of 2023 we discussed that 2023 was a pretty tough insurance year for the San Francisco Bay area and throughout much of California. We had hoped that 2024 would have been a much better year – but it was not. It was probably worse. Although it is challenging to quantify or prove just that.

2024 saw an incredible amount of binding suspensions, in one version or another. A few insurers either started or completed their exodus of the admitted market. This office certainly noticed average homeowners premiums increasing. Nonrenewals were higher than this office has ever seen in the personal lines space. Apartment buildings became extremely difficult to place, especially older San Francisco Buildings. Inspections seemed to change. And without any study to prove this, it does seem like dwelling insurance inspections are not what they used to be. Certainly the frequency is up and the cause for cancellations and nonrenewals seem to be higher. Older electrical systems such as – Knob and Tube wiring – do not really seem insurable anymore.

2024 was not enjoyable. Not for the consumers, businesses, nor agencies. This is of course, not a complete list. Mostly just top of the mind types of issues.

The 2025 California Insurance Year:

Could 2025 be the year the market swings back up to normal?

The Sustainable Strategy

There is much discussion and frankly hype about the California Sustainable Insurance Strategy. This plan, was created in part by Ricardo Lara – and is “aimed at safeguarding the overall health of the insurance market, comprised of consumers, homeowners and business owners, while ensuring long-term sustainability.” The plan – according to the DOI website – uses “decisive actions.” The download available on their own site – states that there are four main benefits of this plan:

• Increasing Insurance Availability and Access
• Decreasing FAIR Plan Policyholders
• Allowing Catastrophe Models and Mitigation
• Modernizing the FAIR Plan

This strategy is interesting at face value, but once you dig into the details it is not at all clear how this will really solve some/ any of the core issues. We wish this Sustainable Insurance Strategy the best and hope it works its wonders. Could 2025 be the year of Ricardo Lara?

New Underwriting Rules and Availablity of Insurance for Older Buildings

This office has noticed a terrible trend. Older San Francisco builings, often apartment buildings do NOT have the same insurance options that they once did. Forget Knob and Tube wiring and Wood Shake single roofs, we have seen requirements for all building systems to be less than 30 years old!

Perhaps new admitted insurers can step into this market. Well cared for apartment buildings with 55 year old plumbing need insurance too.

Nonadmitted Insurers – Send in your California Capacity

Nonadmitted or Surplus Lines insurance is for those that are not able to secure coverage from the regular insurers. The regular insurers, admitted insurers are most of the insurance companies you have heard of.

With the homeowners market in a free fall – many consumers were left with two major choices – A California FAIR plan with a Companion DIC policy or a nonadmitted insurance policy. Both options have plusses and most have drawbacks. Neither is ideal. A classic nonadmitted insurer is Lloyds of London. [While they are technically not always nonadmitted, they usually are.]

Nonadmitted insurance is a godsend when the regular market is broken. And the CA insurance landscape does indeed appear broken. However many of these surplus lines programs have taken on all of the business that they can. And in many instances – they need more capital that creates so called capacity.

Umbrella and Excess Insurance – We need More Options:

Unbeknownst to many – including Lara – getting and keeping excess lines insurance in much of the country, especially California- has become quite hard. For those lucky enough to be able to secure $30MM, $40MM, & $50MM policies – hold onto them.

For the rest of us – well – its a big challenge. For 2025 – We really hope for more excess lines options, both personal and commercial.

California Needs a Calm Insurance Claims Year in 2025:

This seems such an obvious statement to make – but the State of California needs a couple of calm insurance years that allow personal and commercial insurers to make some money. If only they can turn a tidy profit for next several years, perhaps they may consider writing more policies.

If you scour the web you will may come to articles stating that insurers have never made more money and then the next article might show you that insurers are losing money. What to believe? In an Editorial, the LA times states “the giant wildfires of 2017 and 2018 had a huge impact, requiring insurers to pay claims equivalent to more than 20 years of profits…” LA Times Source. That in a nutshell is the problem. Good profits for five, ten, and fifteen years of profits being destroyed by a few bad events.

As of the writing of this article in December of 2024 – much of Pepperdine University’s surrounding area is burning. So this ‘wish’ might just be wishful thinking.

What Really will Happen in 2025 is Anybody’s Guess:

Will the Weat Coast of the United States have a quite claims market in 2025? Will wildfire mitigation strategies pay off in Gold Country? Will surplus lines insurance policies flood the market? Will a new startup start writing $20MM personal umbrella policies? WIll premiums decrease in home inusance in and around the San Francisco Bay Area: Santa Rosa, San Rafael, Walnut Creek, Oakland, San Jose, Morgan Hill, etc? Will the Insurance Commissioners plan pay off? We do not know. But we can hope so.

Please speak with a licensed insurance agent or broker in your jurisdiction whenever you are considering making any insurance changes. Thanks for reading.