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Posts|November 05, 2021

2022 State of the California Personal Lines Market

By Carolyn Konecki
Personal Lines Manager CPRM, CISR

Homeowners Insurance

Five of the six largest wildfires in California’s history occurred in 2020, and 2021 is becoming another record-setting wildfire season. While the full impact on the homeowner’s insurance market will not likely be understood until early next year, the current trends of non-renewals, difficulty in obtaining new insurance, and rate increases are expected to continue.

Clients looking to buy a new home will face difficulty in obtaining coverage if that home is located near brush or open space, or has had a loss within the last five years. They should expect insurance companies to require them to install loss prevention devices - such as a seismic gas shut off valve and an automatic water shut off valve - and remove any plant material that touches or hangs over their house, as a condition of coverage.

Outside of wildfires, water losses (from plumbing leaks, failed appliances and toilet overflows) continue increase in frequency. Homeowners that install automatic water shut off devices will be rewarded with large discounts and more favorable underwriting decision.

Marketplace predictions:

  • The market will remain hard, specifically in wildfire prone areas.
  • Non-renewals will continue to occur throughout the marketplace and will impact high and very high brush areas the most.
  • Surplus lines insurance companies (companies not financially backed by the state) will play a huge role as providers of home insurance policies, especially in the high-value home market. While they offer a solution, their rates are significantly higher than the admitted companies.
  • Expect aggressive rate increases in California as wildfires continue to be a threat, supply chains get squeezed and reinsurance for insurers is hard to get and expensive.
  • Home insurance has been so unprofitable for insurance companies for the past several years that they are reluctant to write new business. Capacity will remain limited until rate increases catch up.
  • Because of supply chain interruptions and fire losses, home reconstruction costs are increasing.
  • Some insurance companies are reducing coverage on their premium homeowners’ contracts in an effort to stay in the market and limit rate increases. Some carriers are limiting the amount of Additional Living Expenses, excluding landscape from wildfire damage, lowering Extended Dwelling Replacement Cost coverage, mandating higher deductibles, and/or adding a separate deductible for wildfires.
  • Uncertainty over pending legislation to limit what insurers will be able to do in terms of declining business or non-renewing business, will cause hesitancy for carriers to write new business and make new carriers hesitant to enter the market.
  • Loss mitigation is more important than ever.  Those homeowners who “harden” their homes against water damage, wildfires, and earthquakes will have the most choices and will get the best price (not to mention they will more likely survive a catastrophe with minimal damage to their homes).
  • Areas outside of California, like Arizona, Washington, Oregon and Colorado, will start to see the impact by brush rating as fires become more prevalent in those states.
  • Water detection systems will continue to be important to limit the severity of water losses.

Earthquake Insurance

According to seismologists, the Los Angeles and San Francisco regions are overdue for a major earthquake.  Since home insurance companies are required to offer earthquake insurance, many who offer insurance on their own contracts are hesitant to write homes built before 1996 (when the most recent code changes occurred). They want pre-1996 homes to have been retrofit for earthquake.

Many insurers partner with the California Earthquake Authority, which offers earthquake coverage on their behalf. Since the insurer is not at risk to payout in the event of an earthquake, they have less strict underwriting requirements.

A couple of stand-alone earthquake companies have pulled out of California and other ones have reached capacity in certain zip codes so they are not offering new policies.

Expect the earthquake market to continue to harden, coverage to be limited to just what the state requires and rates to increase.

Auto, Collections, Excess Liability and other lines of Insurance

Rates for other lines of personal insurance, such as auto, motorcycle, watercraft, collections (art, jewelry, wine, antiques) and excess liability (umbrella) should be fairly stable in 2022.

Marketplace predictions:

  • Expect insurers that offer collections coverage to severely restrict or cancel the coverage they offer if the home that the collection is stored at is in a wildfire area.
  • Because of supply chain issues and the increased cost of renting a car, some companies may increase the daily dollar limit and period of coverage on rental cars.

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