Why Did My Home Insurance Premium Increase So Much?

Carolyn Konecki, CPRM, CISR
The California home insurance market changed dramatically at the beginning of 2019 and continues to evolve into a very hard market. Thirty thousand homes burned to the ground during the wildfires of 2017 and 2018. The 2018 wildfire season was the deadliest and most destructive ever recorded in California, with a total of 8,527 fires burning almost 1,900,000 total acres. Seven of California’s top 20 most destructive fires have occurred just in the last two years.

Several of those fires – the Camp, Woolsey, Thomas, Tubbs and Atlas fires – were caused by utilities, yet the insurance companies cannot recover from them. Further compounding the issue, the California legislature passed several new consumer protection laws to assist wildfire victims, which shift more of the financial burden to the insurance companies.

Because of the large numbers of homes burned, the rebuilding costs have skyrocketed. Many home insurers offer additional limits of coverage as part of their policy, with some even doubling the dwelling amount. Construction timelines have also been extended. It is not unusual to take two to three years to totally rebuild. Keep in mind, the insurance companies pay for the family to live someplace comparable while their home is being rebuilt.

As a result of these combined factors, many home insurers are not renewing policies and/or adding large brush surcharges to homes that are located near open space, which includes canyons and hillsides. Embers can easily travel for miles in high winds, so even though a home is located near the coast, past fires have shown us that no home is truly safe.

The insurers have also tightened their underwriting, choosing not to add any new homes that are close to open space that have had a prior claim or that are older (and haven’t updated their internal systems). Insurers are also actively trying to spread their risk, meaning they don’t want to insure too many homes on the same street.

The impact I am seeing on our clients is limited options for both new property purchases as well as existing home renewals. Because of the higher rebuilding costs, all carriers are adding an inflation factor, automatically increasing the dwelling limit by as much as 10%. All insurance companies have increased their base rates and, as mentioned earlier, some are also adding brush surcharges.

The bottom line is higher prices with severely limited options.

What Can You Do to Manage Costs?

  1. Update your plumbing, electrical and heating systems.
  2. Replace a wood shake roof.
  3. Add protective devices like an automatic water shut off device, automatic earthquake shut off valve, and an alarm system. Not only do these devices increase your safety, but most insurance companies offer credits for them.
  4. Increase your deductible.
  5. Do not file small claims.
  6. Make your home as fire proof as possible.