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HOMEOWNERS INSURANCE UPDATE: NAVIGATING CHALLENGES AND THE WAY AHEAD IN CALIFORNIA

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Thursday February 8, 2024
HOMEOWNERS INSURANCE UPDATE: NAVIGATING CHALLENGES AND THE WAY AHEAD IN CALIFORNIA

It has become increasingly difficult for new homebuyers in California to get home insurance. With prominent carriers like Allstate and Farmers pulling out of several states from offering new policies and Safeco dropping 950 existing policies, it has also become progressively challenging for existing homeowners in California to renew their policies. At the same time, State Farm is all set to increase its annual premium by 20% this year. In cases where renewals are possible in 2024, there is an expectation of a 20%–50% jump in premiums; much higher if you’re in an area prone to wildfires and severe storms.

If a homebuyer can’t buy home insurance easily, the entire transaction may collapse, as the lender would refrain from proceeding with the loan. Conversely, if the insurance policy is secured but at a considerably higher cost, it substantially raises the overall expense of homeownership.

Why is this happening?
This crisis is the result of several factors — climate change, with its increase in frequency and severity of wildfires, tornados, hurricanes, storms, etc., rising crime rates, and the level and volatility of inflation, creating uncertainty for insurance carriers in calculating payouts. Together with the fact that insurance premiums have remained unchanged for an extended period, all the uncertainty in assessing risks makes it challenging for them to predict future costs and liabilities, potentially resulting in high loss ratios, which they have suffered recently and would like to avoid going forward. Indeed, this year, companies insuring U.S. homeowners are expected to lose money. For every dollar they get from premiums, they will likely pay $1.05 in claims and expenses. This would be the sixth time in seven years that they’ve had more expenses than income, making it a tough financial year for these insurers.

What is the resolution to this crisis and what does the future look like?
California has earmarked $2.7 billion for wildfire resilience in the past three years, according to the insurance department. A group of experts have provided recommendations on mitigating climate change risks; here are a few highlights from their extensive list:
● Develop hazard maps for the entire state to enhance public awareness of future risks
● Allocate more funds for retrofitting homes
● Implement fire-resistant building codes in regions with moderate to high fire risk

If insurance companies see more investments being made to shore up the infrastructure of states, they will be encouraged to stay.

According to CalMatters, CA’s Insurance Commissioner, Ricardo Lara will work towards persuading insurance companies to stay in the state. Commissioner Lara also announced a deal with insurance companies to issue additional policies, ensuring coverage for at least 85% of homeowners in high wildfire-risk zones. This arrangement would enable homeowners currently covered by the state’s last-resort insurer, the FAIR plan, to transition back to the regular insurance market, letting insurance companies use predictive climate catastrophe models rather than relying solely on historical risk data.

What can homeowners do to their homes to prevent claims and bring premiums down?
● Replace your roof. Replacing your old roof with a new one can significantly bring down your premiums – even better if it’s made with fire-resistant material if you’re in a wildfire-prone area.
● Keep your property clear of flammables. Clear all vegetation, including trees, shrubs, bushes, plants, grass, and weeds. Use noncombustible hardscape such as gravel or paving stones around your home, keeping it debris-free.
● Install tighter security. Stronger security systems reduce the chances of burglary or intrusion, leading insurance companies to provide more favorable discounts.
● Talk to your insurer. If you have made any home improvements to ensure better safety for your home, let your insurer know. Most will change your rates even before your renewal is up.

What is the FAIR plan and how does it work?
The FAIR plan is a critical insurance option for Californians. California residents and businesses, both in urban and rural areas, can access the FAIR Plan if they are unable to secure insurance through a conventional insurance company. The FAIR Plan is intended to function as a temporary and last-resort solution for property owners. A state judge ruled in favor of updating the plan to include coverage for theft, water damage, liability, and more. The CA FAIR Plan might soon provide more extensive homeowners insurance to its 300,000+ policyholders.

What is Agencia Insurance’s role?
Advancements in geo-location, API, AI, data analytics, blockchain, and big data present new opportunities for insurers. These technologies are expected to improve the efficiency of home insurance distribution platforms, offering various coverage options seamlessly during the purchase process.

Digital transformation also allows insurers to create personalized user experiences. To stay competitive, insurers are exploring big data analytics and using technology for data collection, meeting customer needs, risk calculation, and fraud detection.

Agencia Insurance, powered by Bubble, is at the forefront of using data around the effects of climate change, through exclusive Bubble HomeScores™ that reflect all the risks and threats by zip codes in California and other parts of the United States. Agencia Insurance is committed to helping homeowners and homebuyers understand the coverages they need and preventive measures they can take, and shop for products that are best fit for holistic protection. They have also developed informative city-level flyers that offer homeowners insights into all potential environmental and human-made hazards and perils, and practical measures to mitigate their damaging effects.

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