What Is Happening With My Insurance? The State of the Insurance Market Right Now (CA Edition) - Gillespie Insurance Services (2024)

What Is Happening With My Insurance? The State of the Insurance Market Right Now (CA Edition)

What do you call someone that just got a 40% increase on their home and auto insurance? Lucky!

Seriously, these days, it’s not a bad deal.

How can I make such a joke and have it actually be considered mildly funny?

Because there is a very significantly sized grain of truth in it.

We are in what’s called a Hard Market. This is where rates are up, and coverage and availability are down.

What I will show you is what is going on, why I believe it is happening, and what you can do about it.

First, what is happening?

Insurance companies are either raising rates, cancelling policies, or leaving the state of CA altogether. This has the effect of leaving too few insurers in CA to do business.

State Farm is cancelling 72,000 policies next year. The other biggest captive insurers Farmers and Allstate have also stopped writing policies.

The biggest insurers that work with independent agencies have also restricted and reduced eligibility and/or completely stopped or writing new policies. Here’s a sample:

• American Modern
• AmTrust
• Foremost
• Guard
• Infinity
• Kemper
• Liberty Mutual
• Nationwide
• Pacific Specialty
• Philadelphia
• Progressive
• Safeco
• Stillwater
• Travelers
• Lots more, many more…. if I actually listed every carrier that qualifies for this list, it would be so long you’d lose interest in reading the rest of this post.

This is basic economics: there is more demand for insurance than there are insurance companies willing to supply insurance. This sends rates up.

The hard market crosses over into multiple lines of business, for both personal and commercial segments:

• Property rates are up
• Liability rates are up
• Auto rates are up
• Umbrella rates are up
• Employment Practices Liability rates are up

California Fair Plan was set up to be the property insurer of last resort. There used to be 126,000 policy holders in 2018 at the beginning of the hard market to now over 350,000. It has doubled in policy count from 2018 to today. Fair Plan is not cheap. For example, a client-of-mine’s insurer cancelled his $2,500 building policy in 2018, so we had to move him to the Fair Plan in 2019 at $7,000 a year. In 2023 it went up to $16,000 and this year it renewed at $28,000. The client didn’t shop us because there are no other options available.

In most independent agencies, like the one that I’m at, our available insurers are reduced down to one or two per line of business, if any at all.

Second: How did this market condition happen?

Fire.

Mostly fire, anyway.

Primarily wildfires.

Wildfires over the last decade have caused insurers billions of dollars in losses. 7 out of 10 of the most destructive wildfires in California history have all taken place within the last 10 years.

1. The Camp Fire destroyed 19,000 structures in 2018
2. The Tubbs Fire destroyed 5,600 structures in 2017
3. The North Complex Fire destroyed 2,400 structures in 2020
4. The Valley Fire destroyed 2,000 structures in 2015
5. The Woolsley Fire destroyed 1,600 structures in 2018 (this is the only SoCal fire)

Auto losses are up causing auto rates to go up:

• Supply chain issues since Covid (still)
• Lawsuits
• Distracted driving causing increase in frequency
• Severity – cost per claim is up

Liability (personal, auto, commercial general, employers) rates are up because claims are up. Umbrella and Excess policies pay additional sums of money when the underlying liability policy limit is exhausted. So if umbrella rates are up, this is because they’re actually being used. When umbrella rates increase, it’s because claims on underlying policies are bigger, more frequent, or both.

Why are liability claims up?

That’s a great question. I don’t know everything, man. But I can observe the world around me, take mental notes of the conversations I’ve had with my clients, friends, and strangers in dark alleys, and come up with theories. (This is what humanity did before there was such a thing as “peer reviewed studies.”) Anyway, ready for my theory? Claims are up because of bodily injury and property damage lawsuits. Lawsuits are up because claimants get lawyers more frequently than they used to. Claimants get lawyers more frequently because they are angry at the world in general and their lives in particular (dissatisfaction probably started sometime around March 2020), they feel ripped off, are constantly advertised to by Sweet James and Larry H Parker, and have heard through the grapevine that suing others can be a great retirement plan. That’s my observation-based anecdotal theory.

Also, the government plays a big role. The CA Dept of Insurance regulates the insurance industry by approving or rejecting insurers’ rate requests. The Insurance Commissioner, an elected official, primarily incentivized to be re-elected, has rejected insurers’ rate increase filings to the point where they don’t project a profit – so they shut off business.

Note: CA Fair Plan – and excess and surplus lines insurers which I haven’t discussed here – are not subject to the same CA Department Insurance rating rules and can charge as much as they want, sometimes ten times as much as you used to pay.

I guess inflation is a part of it, too.

In Summary:

1. Claims are up, which;
2. Send rates up, but;
3. The CA Dept of Insurance limits rate increases, and;
4. Insurers can’t get as much of an increase as they want, so they;
5. Cancel policies and leave the state, which;
6. Leaves us with fewer options and expensive insurers like CA Fair Plan and excess and surplus lines insurers that can charge whatever they want, and;
7. Inflation doesn’t help.

Lastly: what can we do about this?

Outside of writing your senator, or moving to a state with better laws, better drivers, happier people, and fewer natural disasters? Honestly, not much.

But here are a few tips I’ve mustered up that might help a little:

One: Don’t be surprised by rate increases or cancellations on any of your policies. Unfulfilled expectations creates frustration. Expect to be next. Celebrate when your policy renews.

Two: Know that it’s bad for everyone and we’re all in this – holding our trembling, weary hands – together. No one is singled out and it’s not your fault (unless you’re the one suing everyone or starting fires).

Three: Comply with insurance companies requests, practice really good risk management, and think twice about filing a claim. Don’t worry about increasing your deductible as a cost saving measure. It’s not going to do much for you. Yes, by all means, ask your insurance agent to quote the options. There is nothing more he would love to than quote you the price differences so you’ll see how little of a difference it makes. I do, however, recommend increasing your deductible as a way to prevent you from filing a small claim and getting yourself canceled next year.

Four: Keep track of all your policies and make sure they get paid on time. Don’t rely on your lender or agent to be your personal secretary. Yes, we insurance agency people usually get emails when a policy is pending cancellation. But not for all policies. Not for Fair Plan! It is up to YOU, not anyone else to make sure your bills get paid. Sorry to throw so much shade on you right now. But dang, pay your bills. Spreadsheets are wonderful tools to help keep track of anything. I highly recommend getting into spreadsheets and calendar reminders.

Five: Go easy on those people in the business. Most insurance customer service representatives are not crazy-high-paid people laughing all the way to the bank. They are helpers by nature, and believe that insurance is a prudent way to protect what’s important to you, and they don’t sleep well knowing that it’s tough for so many of their long time clients, who are also often their friends.

Remember that insurance agency personnel don’t set prices, can’t make insurance companies do what they don’t want to do, and hate the hard market as much as everyone else.

In conclusion, these market cycles last usually 5 to 7 years. We are in year five, and it doesn’t seem to be letting up yet. I’ve seen a few new carriers enter the marketplace in 2024, which is welcome news, but it’s only when the big boys (see above list) come back that I will start singing insurance market praise songs again. So, I give it a couple more years before we see any significant changes.

At that point, I will hopefully have some better jokes for you.