If you’re a property owner in California, you may be facing an unsettling situation. Your insurance might have expired, your provider has hiked up premiums, or worse, they’ve decided not to renew your policy. You’re likely panicking and wondering what to do next. Don’t worry, you’re not alone.
In a recent episode of our podcast, we took a deep dive into the turbulent world of property insurance. Why are insurance rates skyrocketing? Why are major insurance companies leaving California? More importantly, what can property owners like you do to navigate this increasingly complex landscape? Joining me was my good friend Michael Leone from Fuller Insurance to help unpack these pressing issues.
The Shifting Landscape of Property Insurance
For years, insurance was a straightforward line item in property expenses, but now it’s become a critical factor in real estate transactions. Gone are the days when insurance was a routine detail. Today, it’s a deal-breaker for many potential buyers. Imagine entering escrow on a 12-unit building, only to find that securing insurance is now a contingency for the sale. Buyers are more concerned than ever: Can they insure the property, and if so, at what cost?
According to Michael, the changes in the insurance market started around three to four years ago. Premiums used to increase by a modest 3-5%, but suddenly, increases of 10-12% became the norm. Then came the cancellations—initially minor carriers, but now, even major players like State Farm have exited the market. Property owners are now being canceled or denied insurance for reasons as simple as having an old electrical panel.
Why Are Premiums So High?
At the root of this insurance crisis is the increasing number of claims. Claims for mold, water damage, and even slip-and-fall lawsuits have driven insurers to the breaking point. Michael shared that many insurers face what they call “nuclear claims,” where settlements far exceed what they charge in premiums. Some companies have been forced to pay millions in claims on policies that only generate $3,000 annually in premiums. This is unsustainable.
This loss trend has led insurance companies to exit the California market. In fact, companies like State Farm have canceled tens of thousands of policies because they simply can’t make a profit. They’re unable to charge premiums high enough to cover the cost of claims due to state regulations, leading them to abandon the market altogether.
The Impact on Property Owners
For the few insurance companies that remain, premiums are rising exponentially. Michael shared a real-life example of a mutual client whose premium jumped from $12,000 to nearly $50,000 in one year. And these aren’t anomalies. Owners are being forced to make costly repairs to maintain their policies. Insurers are now requiring upgrades to roofs, plumbing, and electrical systems to even consider renewing a policy.
On top of these challenges, California’s rent control laws mean that landlords can’t simply pass these increased costs onto tenants, squeezing already thin margins even further.
What Can Property Owners Do?
In this uncertain environment, what can property owners do to protect themselves?
- Be Proactive: Property owners must take a proactive approach to managing their buildings. This includes regular maintenance, upgrading aging systems (especially plumbing and electrical), and keeping thorough documentation to prove their properties are a low risk.
- Understand Your Policy: Even if your insurance company renews your policy, it may come with exclusions or reduced coverage. Water damage and liability coverage are often capped or excluded entirely. Review your policy carefully and understand exactly what is and isn’t covered.
- Work with an Experienced Broker: Having a knowledgeable insurance broker is essential. A good broker can help you navigate these challenges by providing multiple coverage options and helping you understand what steps you need to take to secure affordable insurance.
- Consider the California Fair Plan: As more private insurers leave the market, the California Fair Plan has become the option of last resort for many property owners. While it may not offer comprehensive coverage, it can serve as a temporary solution until better options become available.
The Road Ahead
The future of California’s property insurance market is uncertain. While Michael is optimistic that some carriers will return eventually, it’s not likely to happen overnight. The losses that insurers have incurred in recent years mean it will take time before they’re willing to re-enter such a volatile market.
For property owners, the best course of action is to stay informed, be proactive, and work closely with professionals who can guide them through this challenging time.
If you have concerns about your property insurance or need advice on navigating this complex landscape, feel free to reach out to experts like Michael Leonie at Fuller Insurance. In a time of uncertainty, having someone in your corner who understands the intricacies of the market can make all the difference.
Stay tuned to our podcast for more in-depth discussions on the issues that matter most to property owners.
How to Contact Michael Leone
