Given some of the issues plaguing the California insurance market right now, I wanted to provide an
overview of the situation. I hope this helps bring context to the insurance market in California leading
to a rate increase across the board. Please know that I understand the frustration that comes along
with increases and wish it were different for all of us. That being said, there are reasons for it and I
want to equip you with knowing why. The top 3 reasons why we are seeing increases in premiums
are an uptick in the effects of natural disasters, inflation, and California regulations.
1. The frequency and extent of natural disasters in California
It’s no surprise that natural disasters make insurance in the Golden State difficult for residents,
agents, and carriers alike. In fact, California experiences more natural disasters—
wildfires, atmospheric river flooding, earthquakes, drought, and mudslides—than any other
state. Analysts estimate the winter storms of December 2022 and January 2023 alone account for
$5 billion to $7 billion in economic losses and another $500 million to $1.5 billion in insured losses. In
addition to these numbers, believe it or not, insurance companies buy insurance for themselves as
well. An uptick in the number and severity of California natural disasters causes reinsurers to charge
insurance companies higher rates for policies in these high-risk areas. These costs, over time, are
passed along to residents in the form of higher yearly premiums.
2. Inflation
To fix a bumper costs a lot more than it did 4 years ago. Most everything costs more and inflation is
being reflected in premium increases.
3. The strict regulations of California and the challenging economic climate
Inflation is a major source of increased premiums. In addition to inflation, California insurers must
receive approval from the state insurance department before adjusting their prices. Due to the
pandemic, insurance companies have not been allowed to take a rate increase on auto insurance in
years and many insurers are paying more in claims than they’re taking in — and have been for
years. Just in the last month or so, regulators are approving rate increases which are hardly enough
to keep up with the challenging economic climate. In response, insurers are reducing their operating
expenses (i.e., closing offices) and implementing stricter underwriting requirements. Some well-known carriers are halting their advertising efforts in the state or choosing to exit the California
market altogether.
What Current Conditions Mean for You
These conditions make it challenging for agents in California to find or requote policies for
homeowners and drivers. That being said, if we see a significant increase in premium (remember
most all carriers are increasing their rates across the board), I am happy to see if another carrier has
a better rate for you. There has always been value in our agency being independent and even more so now as we have the flexibility to look at different carrier solutions for our clients and we are not tied to one company. With that being said, please know that due to the issues above, the options have become more limited and you may already be in the best spot.
