By Brian Crumbaker
Agency Owner, Brightway, The Crumbaker Agency


Known as an epicenter of tectonic activity and endless drought, California is coming to grips with the new reality sparked by massive losses from wildfires. Home insurance prices are increasing, and California is in the midst of a prolonged hardening market.

Are the wildfires the sole reason for the hardening insurance market in California? And what does a hard market mean for homeowners here?

Hard market
While it’s easy to point fingers at the wildfires, insurance is a global market. Catastrophes across the world—think both California’s and Australia’s wildfires and hurricanes on the East and Gulf coasts—all take a toll as insurance companies pay more for reinsurance.

Regardless of where you live, due to an increased number of catastrophes across the world in recent years, you’re likely seeing rates go up.

Have we seen the worst?
Whether the market gets worse before it gets better depends on where you live.

The 2020 California wildfires were devastating and shattered records with more than 4 million acres burned. In addition to natural forces, the state’s self-imposed regulations affect the market. Rate increases that exceed 6.9% require a process that includes a formal rate hearing. Because of these natural and manmade forces, the hard market may last several years in California.

The quiet crisis
In the past, underwriters assessed property by its proximity to a fire station and to brush, but the industry’s reaction to assessing has grown more complex. Insurers still look at proximity to brush, but they also look at wind patterns.

Another factor is capacity. Companies that already insure properties in the area may decide they’re not going to take on more risk. This change in appetite and underwriting is causing two major shifts. 

First, it’s becoming more expensive to insure homes on the lower end of the market, especially in inland areas. The cost is often so prohibitive, sellers can’t find buyers.

Second, buyers on the high end of the market can’t find coverage either, and the limitations of California’s Fair Access to Insurance Requirements (FAIR) plan leave them without the coverage they need to protect their investment. In high-end areas, the only market available is a secondary market with prices higher than anything we’ve ever seen.

I worked with a homebuyer who wanted to purchase a $4.8 million home in Rancho Santa Fe. The company that had insured the property wouldn’t insure it for new homebuyers, who were looking at a $49,000 annual premium. Their only other option was to buy a policy via the state’s FAIR plan, which provides maximum coverage of $3 million. They chose not to purchase the home because the cost of insurance was too great.

It was disappointing for the buyers, but the bigger issue is for people in less expensive homes who were paying, for example, $600 for their annual premium and now are looking at paying $2,500.

We haven’t seen a broad market slowdown in home sales yet, but we are seeing an increasing number of escrow closings delayed or halted due to insurance issues. The long-term effect on the real estate market could be catastrophic if home sales materially drop due to the cost or availability of home insurance or if home prices drop considerably.

As if the wildfires and water losses aren’t enough, the pandemic adds another layer of complexity as millions face volatile employment situations and are trying to cut costs.

Our agency’s access to markets has been advantageous but even with our many options of insurance brands, there are some properties that require us to resort to the FAIR plan for fire and wind coverages, and a Difference in Conditions policy for water, theft and other liability.

The FAIR Plan offers coverage to high-risk homeowners and renters who have trouble obtaining coverage by other means. The plan offers coverage that is considerably limited and more expensive than traditional Homeowners policies.

According to the California Department of Insurance, the FAIR Plan said it has grown substantially since 2018, adding approximately 97,629 new policies from January 2019 to June 2020.

Talk to an Agent
Homeowners should anticipate rate increases. I make it a priority to counsel my customers and to be transparent with them. If the FAIR Plan is their only option and adequately covers the property, I explain this and the necessity of a Difference in Conditions policy.  

Education is key. It’s important to talk with an Agent so you don’t sacrifice coverage for a lower price.

Brian Crumbaker is the owner of Brightway, the Crumbaker Agency in Carlsbad. He has more than 20 years of personal lines experience.

Click here for more facts and statistics on wildfires published by the Insurance Information Institute.

For media inquiries, please contact Don Foley at 904-490-8649