By tf-lawyer.com Hurricane Milton is on its way to Florida, a state notorious for its steep homeowners’ insurance premiums, partly due to its frequent run-ins with hurricanes. Meanwhile, California is in the midst of its own growing insurance crisis, yet its premiums remain significantly lower than those in Florida. The California Department of Insurance is exploring what they call “insurance reform,” which raises the question: will this reform help or hurt consumers?
Reports from the San Francisco Chronicle indicate that both California and Florida are grappling with severe insurance dilemmas, albeit from different natural disasters. While Florida braces for hurricanes, California faces wildfires and earthquakes. Peter Heckathorn, who grew up in California before relocating to Florida, found himself shelling out a staggering annual homeowners’ insurance premium of $12,500 before he returned to California last year.
Upon settling in Orinda, California, Heckathorn was pleasantly surprised to find that his annual premium had plummeted to just $3,500. At first, he kept this knowledge to himself, convinced that the insurance company or broker must have made an error in pricing. However, he soon discovered that others were also enjoying relatively affordable rates, prompting him to inform friends and family that Californians are “blissfully unaware of their good fortune.”
Data from the National Association of Insurance Commissioners revealed in 2021 that the average annual homeowners’ insurance premium in Florida was $2,437, making it the most expensive in the nation. In comparison, California’s average premium was a much lower $1,403, placing it 20th in the nation. It’s also worth noting the disparity in home values: over 37% of homes in California were valued over $500,000, while only 10% of homes in Florida fell into that category. Given the rising trends in home prices and insurance premiums since 2021, those numbers are likely even higher today.
Insurance experts argue that regulations established decades ago in California contribute significantly to its lower premiums compared to Florida. However, as California moves forward with potential insurance reforms, concerns are growing that it may start to reflect Florida’s situation, leaving Heckathorn anxious about what lies ahead.
Current regulations restrict insurance companies from using catastrophe models to forecast and price premiums, forcing them to rely solely on historical data. Insurers contend that this pricing is insufficient, leading many to exit California’s homeowners’ insurance market or cease issuing new policies. David Russell, a professor of insurance at CSU Northridge, points out that California is the only state with such constraints.
The California Department of Insurance intends to start lifting various restrictions before the year ends, with hopes of attracting more insurers back to the state and encouraging major firms like State Farm and Allstate to resume offering new policies.
Experts mostly agree that such reforms will lead to higher premiums. Even before these changes take effect, State Farm and Allstate have already increased their rates by 20% and 34%, respectively, with State Farm requesting an additional 30% hike. Other major insurers have also raised their rates by over 10% for customers recently. The landscape of homeowners’ insurance in California could be changing rapidly.
