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A close up of the first sheet of a home insurance policy, which is on a table in front of an open laptop, a pair of black-rimmed glasses are folded on the paper to the right and two black pens sit on it to the left.

‘It’s just a terrible market’: major insurers cut back in California, leaving Richmond homeowners in the lurch

on March 6, 2024

If you’re a California homeowner, it may be time to take a look at your insurance policy. 

After seven major insurance companies have restricted their business dealings in the state, policy holders are footing an exceedingly expensive bill.

At Richmond’s Atchison Village, residents found that out the hard way. 

“Six weeks ago, we just thought we were going to redo our insurance,” said Ronald Kane, president of the Atchison Village Mutual Homes Corp. board.

But when the time came to renew the insurance for the historic 450-unit housing development, members of the board were surprised to hear that Travelers, which had insured them for years, dropped the policy because it was no longer insuring properties worth more than $50 million in California.

With the help of a broker, the board set out to find a new insurer. But the denials kept coming.

Mercury declined because the buildings are more than 60 years old. Amwins/SPFM declined because of the property’s proximity to the railroad tracks. Seneca declined because of how close the Chevron refinery is. Distinguished Programs declined because it is no longer writing insurance policies for condo associations in California.

With each no, Atchison residents watched their options dwindle and reality set in. They were going to have to pay a lot more money. 

In white lettering on a brown sign, behind tall grass decorative grass are the words Atchison Village, Rosie the Riveter/World War II Home Front National Historical Park.
(Photo by Daniel Hennessy)

It’s the worst marketplace Denny Christner, the broker working for Atchison, has seen in his more than 20 years in the business. “They’re looking for ways to non-renew,” he said, referring to the insurance companies.

Citing increasing risk of floods and fires due to climate change, rising building costs and a restrictive California regulatory system, many of the largest insurers have paused or severely curtailed their policy writing in the state. According to the California Insurance Department, State Farm, Farmers, Allstate, USAA, Travelers, Nationwide and Chubb have contracted their business dealings in California. All of these companies are among the top 12 largest insurers in the state, a group that collectively accounts for 85% of the market share. 

The American Property Casualty Insurance Association, a trade organization representing insurance companies, has lobbied hard for an overhaul of the California insurance regulatory system. 

Unique among states, California adheres to the rules set out in Proposition 103, passed in 1988. 

Proposition 103 spells out the process for companies to apply for rate hikes to the Insurance Department. It also allows for an intervenor process, where third parties can submit petitions against rate increases on behalf of consumers. This opens the door for a lengthier review process.

Hailed by consumer groups as a backstop that has saved Californians billions of dollars, the application and intervenor process delays premium increases. According to spokespeople at the APCIA, this, along with climate change, has made insurance companies unable to profitably conduct business in California. 

Laura Curtis, the association’s assistant vice president for Arizona and California, said insurance companies in California are paying out $1.13 for every $1 they collect in premiums. As a result, many have decided to pause or restrict business in the state until adjustments are made.

Governor steps in

In response, officials are reevaluating some of the core tenets of the state’s regulatory system. Insurance Commissioner Ricardo Lara said new regulations  to encourage insurance companies to resume writing policies in California will take effect later this year.

In exchange for commitments to write more policies in distressed areas, Lara’s plan makes concessions that insurance companies have long pushed for. Among other things, it will shorten the premium rate review process and allow insurers to use catastrophe modeling to predict future risks. 

Industry groups assert that this form of modeling allows insurance companies to appropriately price the risks associated with future wildfires. Opponents counter that Proposition 103 allows companies to set rates based only on actual losses from years past. They also point out that these tools are untested and remain opaque in how they actually calculate risk.

Despite these concerns, catastrophe modeling remains a central component of the Insurance Department’s strategy. It was developed after Gov. Gavin Newsom signed an executive order in September for the insurance commissioner to “take prompt regulatory action to strengthen and stabilize” California’s homeowners’ insurance marketplace.

As a result of the changes, Lara’s office said some companies have agreed to increase their policy writing across the state. But not everyone is happy with the plan. Consumer Watchdog, an advocacy organization that was instrumental in Proposition 103 passing, has come out strongly against it, saying in a 2023 report that the changes would gut consumer protection regulations. 

Additionally, 32 members of California’s congressional delegation signed a letter urging Lara to reconsider central components of the plan that they fear will severely limit the Insurance Department’s ability to regulate the market and protect consumers.

How to hold things together

For now, the outlook for Atchison Village is pretty clear. At a standing-room-only meeting recently to discuss the options, residents were informed that the cost of their policy would likely double. 

Sylvia Hopkins, a 21 year-resident of Atchison, said the potential increase will put a strain on her modest pension and social security benefits. She is figuring on paying an extra $100 per month, but does not yet know where that money will come from. Her kids are already helping out, but she feels uncomfortable asking them for more.

“It puts in the forefront of my mind, ‘How am I going to be able to continue to hold things together?’” Hopkins said.

As they spent the meeting trying to make sense of the situation, residents talked through all of the factors that could have made the property difficult to insure. 

In Atchison, which is part of Rosie the Riveter/World War II Home Front National Historical Park, the buildings are old, but they have updated plumbing, electrical and sewage systems. Someone tripped on the sidewalk a few years ago, but Atchison has since done yearly maintenance to address hazards. The development is close to the railroad tracks and refinery, but that’s been the case since the 1940s. Wildfire and flood risks are relatively low.

In fact, noted Christner, underwriters who had previously visited the property really liked the conditions but declined coverage anyway.

“It’s just a terrible market,” Christner said.

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