Golden State Insurance Crisis: Californians Getting Insured Right Out of Their Homes

California is in the throes of a self-imposed insurance crisis. And the state doesn’t seem to be addressing this crisis with any sense of urgency.

The Globe recently spoke with a couple who shared that the condominium complex in which they reside just lost its insurance coverage. “They told our HOA that they just don’t want to insure us anymore,” the husband said.

This is a very nice condominium building.

Consequently, the HOA had to scramble to find new insurance. But the new insurance will cost each of the condo owners an additional $10,000 a year in HOA costs.

“Who can afford an additional $10,000 payment to already high HOA dues?” the husband asked.

Indeed, and what about people on a fixed income or retirement? We agreed that some will have to sell their condos and likely move out of state in order to be able to buy another home or condo.

In June, former State Senator Ted Gaines reported on this crisis in “The Time for Action on Insurance Crisis is Now: Insurance lubricates the entire economy; the current system is broken.”

“Californians need bold and immediate action from the Governor Gavin Newsom and Insurance Commissioner Ricardo Lara to help attract insurers back to the state, create a robust market, and give consumers more options for fire insurance coverage,” Gaines said.

He explained that “rate increase applications are languishing in the Department of Insurance (DOI) for up to two years. Instead of losing money while waiting for rate increases, insurers are pulling out of the state with astonishing speed. It’s likely that everyone reading this knows someone who has been non-renewed by an insurer and unable to find the needed fire insurance required by lenders.”

With homeowners’ insurance going up so dramatically (my own homeowners insurance went up 20% this year, and I feel lucky to have it – but the $3,000 bill for 12 months is painful).

This is pushing Californians to the California FAIR Plan, which is writing the highest-risk policies in California, but it is woefully underfunded, with only a few billion in assets and several hundred billion in liabilities, Ted Gaines reported.

Insurers are now asking for a 34% increase in premiums in California now.

Sen. Gaines explained:

Proposition 103, passed by voters in 1988, governs our state’s property and casualty insurance industry. Under Prop. 103, the Insurance Commissioner must approve rate increase requests from insurers before they are implemented.

The DOI should immediately approve all currently filed rate filings from insurance companies. Rates will increase, for certain. But, right now, the choice is not between higher-priced and lower-priced policies, but between California FAIR Plan’s highest-priced policies or no policies at all. These approvals should extend to requests that include forward-risk modeling and reinsurance costs, which is standard in the other 49 states.

A single catastrophic loss event in an area dense with FAIR Plan policies would bankrupt the entity quickly. The insurance industry is the backstop for the FAIR Plan, meaning they would be liable for paying out excess FAIR Plan claims in proportion to the amount of business they write in our state, even though they are not receiving any premium for those policies and would also pay out for losses on their own policies.

This lose-lose scenario is another reason why insurers are shrinking their California footprint, to avoid FAIR Plan financial liability.

California is and has been a lower-cost state for insurance but that did not accurately reflect the risk insurers faced, as the devastating wildfires of 2017 and 2020 proved. Those fires wiped out decades of insurer California profits and shed critical light on what rate adequacy really looks like. The low prices were an artifact of Prop. 103, which is acting as a price control, which always leads to shortages. It is proving a barrier to its stated goal of ensuring insurance is available to all Californians.

The real responsibility for California’s high insurance premiums lies in state politicians’ and the governor’s policy decisions. Most insurers say because of California’s high cost to rebuild, they can’t keep premiums artificially low any longer.

And why are California’s rebuilding and building costs so high?

• The California Environmental Quality Act (CEQA): As Ed Ring reported for the Globe, over 50+ years, “CEQA has acquired layers of legislative updates and precedent setting court rulings, warping it into a beast that denies clarity to developers and derails projects. When projects do make it through the CEQA gauntlet, the price of passage adds punitive costs in time and money.”
• Project labor agreements are one of the biggest obstacles to political collaboration between construction unions and groups representing business interests, Ed Ring explained. A PLA is “a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project.”
• federal, state, regional, and local agencies permitting, overlapping and conflicting regulations, and the agencies all have the power to halt building projects, allow a lawsuit, or rule change, require an entire new set of designs, and force and individual or builder to resubmit plans to every agency and start all over again (Ed Ring, summarized).

These reasons as well as incoherent water restrictions, preposterous “clean air” requirements, mandatory electricity requirements, mandatory solar requirements, mandatory interior sprinkler systems and the like. These state mandated regulations in home and commerciaL building have driven the cost of construction to unimaginable levels.

In “LA Homeless Tower Cost as Much as 5-Star Hotel to Build,” Thomas Buckley showed how the new Weingart Center 19-story “Permanent Supportive Housing” for the homeless tower cost $594,000 a unit to build – over $1,000 per-square-foot.

The cost of the “housing first $1 Million dollar per-unit recently approved Santa Monica project is an other example of why insurance costs are so high.

Or when in January Sacramento Mayor Darrell Steinberg proudly announced “Sacramento’s historic Capitol Park Hotel, a permanent supportive housing complex for “people experiencing homelessness,” at a cost of $478,000 – per 280 square foot room.

Using Darrell Steinberg’s homeless housing math, his home of approximately 2,000+ square feet would cost $3.8 million, in a residential bedroom community.

For the record, “people experiencing homelessness” are drug-addicted vagrants living on streets, in city parks, or on the banks of California rivers.

In 2020, we reported, “Redevelopment of the hotel is now budgeted at $59.6 million, (up from $23 million in 2019) and is expected to be completed in the summer of 2022 (not August 2019).”

It was finalized in 2024.

The City of Sacramento says it contributed $20.3 million. The rest was other taxpayer funds via Gov. Newsom’s state-funded Project Homekey.

It is 2024, and “guests” are just now moving in, the Globe reported. “We are taking bets on how quickly the apartments will be trashed by the ‘unhoused;’ the opening bet is 2 months.”

This is why California’s insurance has escalated to untold amounts in a relatively short amount of time. It’s not just the wildfires.

We always knew California’s leftist political policies would catch up to the people paying the bills. But no one expected just how high the bills would be. Or how devastating the costs and cancellations would be. Or how the repercussions would hit every industry in the state. Or how so many business owners would pick up and leave California. Or how many employees would leave the state.

Oh wait – yes we did. We’ve been warning about this since Jerry Brown was reelected as governor in 2011, and finished the state off that he started to destroy 1975-1983. We’ve been warning that if Gavin Newsom was elected he would be worse than Jerry Brown. We warned that electing Ricardo Lara to Insurance Commissioner – who has never run a business or even signed the front of a paycheck – would be a disaster…

And here we are – your homeowners insurance has just been cancelled.

Now you know who to blame. But what happens next?