Now also unaffordable or unavailable: Homeowner’s insurance
Add to the list of things that are becoming unaffordable or unsustainably expensive for everyday people in California: homeowner’s insurance.
StateFarm increased its rate by 20% in March 2024. My own homeowner’s insurance rose by 40% over 2023 despite having been with the same company for more than a decade and never presenting a claim to it. Many companies are pulling out of California altogether or from certain areas such as the San Francisco Bay area. For example, Allstate and State Farm are not currently accepting new applications for California home insurance, while Farmers has scaled back the number of policies it plans to write in the state in the future. Since late 2022, seven of the 12 largest home insurance companies in California have either completely paused or greatly limited new home insurance applications. Some people are resorting to self-insuring after, in some places in the greater Los Angeles area, experiencing insurance premiums of $40,000-$100,00 or more per year, per a CNN TV report on March 30, 2024.
The cause? Increased fire risks, earthquake risks, and rapidly rising costs of home repairs. Of course, with worsening climate change will be even hotter temperatures and other weather events that were previously considered to be “extreme,” but which have become the new normal. Political reasons and Proposition 103 may be to blame too. Prop 103 was passed in 1988 to protect insurance policyholders from unjust rate hikes across auto, property, life and casualty insurance. Under Prop 103, insurance companies are required to submit rate increases in excess of 7% percent for approval by the California Department of Insurance. Like any process that involves government approval, it typically comes with red tape, which takes time and thus becomes expensive. Private interveners may become involved with the approval process too, which also can slow down the process.
Inflation and corporate monetary hunger – some would call it greed – play important roles too. The Wall Street Journal recently reported that “[i]nsurers take in profits as customers pay soaring premiums” just as shares of key insurance companies reach record highs after the rate increases.
The solution? We have to do something about climate change, one of the key drivers of wildfires and drought (which are mutually reinforcing). Beyond the scope of this blog is also a thinking about why costs of everything, including home repairs, are rising so much. Equally important is a discussion of potential new rate increase and general cost regulations in this area instead of what appears to be a bit too much laissez-faire style pricing for what for many should be an affordable part of living the American Dream (owning a home and insuring it to at least a modest extent).
From an overall ESG and sustainability point of view: We need to reach environmental and economic solutions that function for a much wider range of people locally, nationally, and internationally than what is currently the case. From a corporate point of view: we need to watch out for not shooting ourselves in the foot too. Some more modesty in pricing and more tempered action may be wise. We are all part of the same, limited Earth system. If some of us lose, we all lose. Instead of zero-sum games as is often the case currently (one “player” wins, but the other loses to the same extent), we should consider viable solutions to how we can all improve our health, wealth, and well-being. It’s possible!
#climatechange #insurance #sustainability #ESG
https://www.wsj.com/finance/insurance-companies-profits-stock-ebae7fd1
https://www.bankrate.com/insurance/homeowners-insurance/carriers-exit-california-home-insurance/