December 12, 2017

Will Home Insurance Become More Expensive in California

With the recent massive fires that have ravaged Napa and Sonoma and now the horrific fires in Los Angeles, is it likely that Fire Insurance Rates will Go up?

A Quick Review of how Home Insurance Works with Brevity:

Fire insurance is typically sold under the name of homeowners or home insurance in the US.  Home insurance is a package of insurance products added together to protect homeowners from various calamities that can hit themselves and their personal lives.

Typical Home Insurance usually includes the following general parts:

• Primary Property Coverage, often called Coverage A.
• Separate Structures Coverage.
• Liability, Personal Liability.
• Loss of Use Coverage, which pay for you to basically stay in a rental, ect during rebuild.

There are lots more coverages, but those are the big four coverages.

The fire protection coverages would generally come from the Primary Coverage, the Separate Structures, and the Loss of Use Coverage.   With the liability coverage most likely not being needed.

How are Fire Insurance Costs Calculated in Marin, Sonoma, and the Rest of California?

Home insurance rates are calculated by the individual home insurance carriers.  I believe that they check their rates compared to other insurance carriers rates.  How exactly they determine them, I cannot say.  The first thing that any given insurance company determines is – if they are willing to write your home insurance policy – Yes or No.  The second thing they do is determine the total cost by using any one of a number of criteria that changes the rates both up or down.  Certainly allowances are permitted for given situations.

It is my understanding that admitted home insurance carriers in California must get the rates, approved when the seek to increase them, by the California Department of Insurance.   How exactly this process works, I can not.  I do know that the state plays a limited role.  I believe that the insurance company must be able to prove that increased rates are required.   Many consumers are unaware of the state guarantee fund which functions remotely like an FDIC insurance policy on home insurance for admitted home insurers.  Therefore it is in the Department of Insurance s best interest to assist all admitted home insurers to continue to be financially stable.   This is a long way of saying – that the DOI should allow higher home insurance rates if it can be provied that its needed to keep an insurer solvent.

The Two Different Ways You May Pay More for Home Insurance in California:

The rate filing via the state is really just one way that its possible that you could pay more for home insurance.  That part is obvious.  Next year, your home insurance premium will likely cost more.  It generally goes up a little each year, but in the next few years it may go up a lot.

The second less well known way that home insurance rates are likely to go up is to because of the quantity of home insurers that write home insurance both in the state and in your area.   There are ‘about’ 50 admitted home insurers that I have seen listed in the State of California.  The more insurers, the more competitive the market.  But when one or two or ten decide to slowly phase out either writing new home policies are opt to leave the California market together – this has the affect of raising rates for all new home owners.

In recent years, I have seen this to be the case in Mill Valley.  Mill Valley, some may know is a small town surrounded by mountains, estuaries, and open space.  There is also a pseudo interstate that runs through it called highway 101.  Mill Valley homes are rarely selling for anything under $1 Million dollars anymore.  There are not a lot of insurance companies that write homes at that price.  On top of this, the wildfire score in MV tends to be high and not many insurers will write homes in bad wildfire areas.  When just ONE insurer raises their underwriting criteria and essentially no longer write in Mill Valley, that means that I may go from 8 carriers to 7 and this can have a dramatic affect on pricing.

So Will Home Rates Go Up Because of All the Wildfires?

About 26 years ago the Oakland hills fire destroyed about 3,300 homes and sadly killed about 25 people.  In comparison, according to the LA Times, almost twice as many homes burned (7,500) in the recent North Bay fires.  An undisclosed number of homes, at the time of this writing, have been destroyed in Los Angeles.

The short answer is – I believe that home insurance rates will indeed go up, I believe that they will likely go up a bunch.

What about Costs for Flood and Earthquake Insurance?

Flood Insurance, a coverage form that is generally excluded from home insurance and Earthquake insurance, another form, generally excluded from home insurance policies will probably not see a rate increase because of these large wildfires.  However – there are other factors that could affect pricing for these two forms of property insurance.

 

Thanks for Reading.