The California property insurance market saw the number of homeowners non-renewed by insurance companies falling by 10 percent statewide in 2020, compared to the previous year.
Driving this was mandatory moratoriums from Insurance Commissioner Ricardo Lara, which made up over 80% of the statewide reduction in non-renewals.
The latest data on California’s challenged property insurance market also show that the number of policies written by the FAIR Plan, an association of insurers that makes up California’s “insurer of last resort,” increased for the second year to a new high. The data represented approximately 98.8% of the homeowners’ insurance market in the state.
“More communities are rolling up their sleeves to protect their homes from wildfire. And more insurance companies are heeding my call to give incentives for home safety,” explained Commissioner Lara. “While we still have a way to go until we have an insurance market that works for all Californians, I remain focused on increasing home safety measures to protect homes and promote market competition while strengthening the FAIR Plan, California’s insurance safety net, so it better addresses consumers’ and businesses’ coverage needs.”
This data continues to reflect the challenging conditions in California’s wildfire zones, as regions with the greatest risk of wildfires experienced higher rates of non-renewals.
By enacting moratoriums on non-renewals in wildfire areas, the insurance commissioner has attempted to stem the tide, but still insurance companies are making their risk aversion to areas of high wildfire risk known in their rates and continuing elevated non-renewals.
“Temporary non-renewal moratoriums are essential to California property owners and communities as stakeholders work to reduce wildfire risk and restore available and affordable insurance options,” Amy Bach, Executive Director of United Policyholders explained. “The science behind incentivizing home safety is indisputable and supported by consumer groups and first responders. Commissioner Lara has undertaken reforms of the FAIR Plan that are long overdue and will help homeowners in the future even after we solve this non-renewal issue.”
Some major insurers, including Allstate, CSAA, and Farmers, have told the California Department of Insurance that they will increase the number of new homeowners policies underwritten in California and cease or limit non-renewals.
Insurer-recognised mitigation is also accelerating, with some companies offering discounts to homeowners that take steps to boost their properties resilience to wildfires.
However, those insurers that are non-renewing less business are now increasing their own exposure to wildfires in California, resulting in a need for more reinsurance protection at a time when rates for that are also rising.
Farmers has sought to manage its access to reinsurance protection by tapping the capital markets with a recent catastrophe bond, which as our sister site Artemis explained includes wildfire reinsurance protection for the company.
Other alternative reinsurance means are being used by Allstate, which already has a well-known catastrophe bond program that provides it with peak peril catastrophe cover.
Reinsurers have been shying away from California wildfire exposure and rates are set to continue rising, as concerns over frequency and severity of wildfire loss events grows.
But access to risk capital is key for insurers seeking to cover this risk, as too is improving the quality of data and risk models available to assess the true exposure of properties in the state.
There may come a point where the California property insurance market bifurcates completely, into one where coverage is readily available if a property is not in a wildfire zone, but far harder to secure where wildfire risk is elevated.
