The Future of Homeowners’ Insurance in California
It happened with long-term care insurance.
The California Department of Insurance didn’t let long-term care insurance companies increase premiums so they would have more money coming in the front door than going out the back in the form of higher than projected claims.
The result?
Some companies went broke like Penn Treaty and the State Guaranty Association had to take them over.
The cost was passed on to health insurance (yes, health insurance) companies doing business in the state.
In other cases, companies stopped writing policies or pulled out of California entirely like CNA, Met Life, Travelers, Hancock and UNUM.
Even the state’s own PERS LTC insurance program is no longer writing new policies.
Insurance companies have to remain profitable so they can fulfill their obligations to their policyholders in all of the states they do business in, not just California.
Yes, we consumers don’t want higher premiums but neither do we want the insurance companies to stop writing policies, pull out of the state or go broke.
The insurance commissioner in California is an elected office and is all to often a parking place for a career politician with no insurance industry experience that has termed out of office in prior positions.
According to the January 10, 2025 Wall Street Journal (WSJ), total economic losses from the fires will top $50 billion which includes $20 billion of insured losses.
The AP says that an estimate by AccuWeather puts the damage and economic losses at $135 - $150 billion.
The insurance of last resort for Californians is the FAIR plan.
Risk exposure for potential losses for the FAIR plan reached $458 billion at the end of September according to the WSJ.
However, it has only $700 million in cash on hand to pay claims.
If FAIR fails then private insurers like State Farm are on the hook to cover claims based on market share.
Which means higher premiums for their policy holders.
If what happened to LTC insurance premiums is any indicator, expect your homeowners’ premiums to increase at least 50% maybe even double like LTC insurance premiums, in the future.
