Florida has had a homeowners insurance crisis for a few years. The California insurance crisis is now hitting—and it is going to be destructive.
“Patrick Douville, vice president for global insurance and pension ratings at Morningstar DBRS, told Digital Insurance’s Michael Shashoua that the situation of California’s insurance market prior to the wildfires has left it difficult to support the FAIR Plan as well as more affordable policies.
“We’ve seen in these situations where you would try to ultimately get the next cohort of policyholders or future premiums to pay for it,” Douville said. “For that to happen, you need a healthy insurance market, which is not the case right now in California.”
73% of policyholders don’t want to receive paper checks for claims payments. So why are you still sending them?
The number of consumers vying for cheaper property insurance rates not just in California, but nationwide, is expected to increase in 2025.
Data from TransUnion’s Personal Lines Trends and Perspectives report for the first quarter of this year showed that for January 2025, 22.4% of consumers with a credit-based insurance score in the 300 to 500 range were shopping around for a new policy. In the 501 to 700 range, that percentage was 12.6% and in the 700 plus range, it was 11.5%.
When the one year moratorium on cancelling policies and leaving the State ends in a year, watch as homeowners insurance might be unattainable. Plus, note that the insurance companies may end their relationship with the FAIR plan, leaving no insurance available.
Homeowners face soaring premiums as insurers exit California
By Frank Gargano, digital Insurance, 2/25/25 https://www.dig-in.com/news/homeowners-face-soaring-premiums-as-insurers-exit-california
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The insurance market for homeowners in California is near catastrophic, as roughly $75 billion in damages is estimated to be left in the wake of unprecedented wildfires. Coupled with already elevated home values prior to the blazes and a new state assessment to support the FAIR plan, the road to recovery grows longer by the day.
State officials are levying a $1 billion assessment against the California FAIR Plan to account for the significant rise in claims being made due to the Palisades, Eaton and other noteworthy wildfires that swept across the state in January.
Home insurance policies were relatively cheaper in California when compared to those in more disaster-prone areas in the Midwest and Southeast regions of the country. However, the wildfires have all but changed that.
New state regulations mandate that private insurers kick in to help offset half of the initial $1 billion cost of the state’s plan of last resort, but the burden of all further wildfire-related costs could be put on the shoulders of policyholders.
Patrick Douville, vice president for global insurance and pension ratings at Morningstar DBRS, told Digital Insurance’s Michael Shashoua that the situation of California’s insurance market prior to the wildfires has left it difficult to support the FAIR Plan as well as more affordable policies.
“We’ve seen in these situations where you would try to ultimately get the next cohort of policyholders or future premiums to pay for it,” Douville said. “For that to happen, you need a healthy insurance market, which is not the case right now in California.”
73% of policyholders don’t want to receive paper checks for claims payments. So why are you still sending them?
The number of consumers vying for cheaper property insurance rates not just in California, but nationwide, is expected to increase in 2025.
Data from TransUnion’s Personal Lines Trends and Perspectives report for the first quarter of this year showed that for January 2025, 22.4% of consumers with a credit-based insurance score in the 300 to 500 range were shopping around for a new policy. In the 501 to 700 range, that percentage was 12.6% and in the 700 plus range, it was 11.5%.
The difference in profitability between automotive and homeowners insurance policies “has encouraged some carriers to double down on marketing bundled insurance offerings, essentially making homeowners insurance a loss leader for more lucrative auto insurance sales,” according to the report.
Learn more about the shakeup in the housing market predicted for 2025 and how insurers and policyholders alike are scrambling to find stability.
Powell predicts damaging impact on housing market from climate change
In speaking to members of the Senate Banking Committee this month, Federal Reserve Chair Jerome Powellsaid the pullout of banks and insurance companies from areas prone to flooding and fires will create “regions of the country where you can’t get a mortgage” in 10 to 15 years.
“I don’t know that it’s a financial stability issue, but it certainly will have significant economic consequences,” Powell said.
Further housing complications are on the horizon that stem from the 10-year Treasury, an issue that Powell distinguished was not tied directly to the Fed’s benchmark interest rate. Even if the rates were to drop, he highlighted that the pandemic’s lingering effects will leave many regions still in the middle of a housing shortage.
California proposal could see fire victims earn interest on payouts
California Gov. Gavin Newsom has put his support behind a proposal that would see recipients of insurance payouts earn interest on funds held in escrow, extending similar standards currently applied to money held by lenders for property taxes and insurance.
While insurers are required by state law to pay interest on money held for property taxes as well as insurance, no such provision exists for money held as policy payoffs — a discrepancy Assemblymember John Harabedian, D-Calif., seeks to address through Assembly Bill 493.
“Homeowners rebuilding after a disaster need all the support they can get, including the interest earned on their insurance funds. … This is a commonsense solution that ensures that they receive every resource available to help them recover and rebuild,” Newsom said in a press release.
Policy differences will mean different payouts for LA wildfire victims
Legal experts that specialize in representing insurance policyholders during legal battles against insurers are urging homeowners impacted by the wildfires to closely review their coverage and rebuilding costs.
Jason Rosenthal, an attorney at Much Shelist, who specializes in representing insurance policyholders in disputes with insurers, told DI’s Michael Shashoua that coverage differences between replacement cost and actual cash value “can be a material difference,” and leave many unknowingly underinsured.
“If you buy a million-dollar home, that includes the land, so there’s some value attributed to the land itself,” he said. “But if you need to rebuild that home, the home itself could cost, if you’re building it from the ground up, a million dollars to rebuild.”
