California homeowners are experiencing sticker shock when their insurance policies renew. Premiums have doubled or tripled for many, while others can’t find coverage at any price. Understanding why this is happening (and what you can do about it) is essential.
The Perfect Storm
Multiple factors have converged to create California’s home insurance crisis:
Catastrophic Wildfires: Since 2017, California has experienced its most destructive fire seasons on record. Insurance companies paid out over $30 billion in wildfire claims between 2017 and 2022. The Camp Fire alone resulted in $12 billion in insured losses.
Rising Construction Costs: Rebuilding costs have increased 40 to 60% since 2020 due to supply chain issues, labor shortages, and material cost inflation. What cost $300 per square foot to rebuild in 2019 now costs $450 to 500 per square foot.
Reinsurance Costs: Insurance companies buy their own insurance (reinsurance) to cover catastrophic losses. Reinsurance costs have skyrocketed, and insurers pass these costs to policyholders.
Proposition 103 Limitations: While this consumer protection law prevents arbitrary rate increases, it also restricts insurers’ ability to use predictive modeling and limits how quickly they can adjust rates to match current risks. This has caused some insurers to exit the California market entirely.Climate Change Impact: More frequent and severe weather events mean higher claim frequency and severity, making California a less attractive market for insurers.
Why Your Rate Increased (Even Without Claims)
You might wonder why your premium jumped when you haven’t filed a claim in years. Insurance is based on pooled risk. Even if you’re claim-free, you’re in a risk pool with others who have filed claims. When insurers pay out billions in wildfire claims, everyone in the pool sees rate increases.
Additionally, your home’s replacement cost has increased dramatically. If your coverage limits increased to match current construction costs, your premium increased proportionally.
What You Can Do
Shop Around Aggressively: Don’t accept your renewal without comparing alternatives. Work with an independent agent who can quote multiple carriers simultaneously. Prices vary significantly between companies.
Increase Your Deductible: Moving from a $1,000 to $2,500 or $5,000 deductible can reduce your premium by 15 to 30%. Just ensure you have emergency savings to cover the higher deductible.
Bundle Policies: Combining home and auto insurance with the same carrier typically saves 15 to 25% on both policies.
Improve Your Home: Insurance companies reward risk reduction:
- Install monitored security and fire alarm systems (10 to 20% discount)
- Upgrade to impact-resistant roofing (up to 35% discount in some areas)
- Add storm shutters in wind-prone areas
- Upgrade electrical, plumbing, and HVAC systems
- Create defensible space if you’re in a wildfire zone
Maintain Good Credit: California allows insurers to use credit-based insurance scores. Improving your credit score can lower your premiums over time.
Review Your Coverage Annually: Make sure you’re not over-insured or paying for coverage you don’t need. However, don’t reduce coverage to dangerous levels just to save money.
Ask About Discounts: Many insurers offer discounts for:
- Claims-free history
- Being retired or working from home
- Professional affiliations
- Automatic payments
- Paperless billing
- New home purchases
Consider the FAIR Plan (Carefully): If you absolutely cannot find traditional coverage, the California FAIR Plan provides basic fire insurance. Supplement it with a difference in conditions (DIC) policy for broader coverage.
What Not to Do
Don’t Drop Coverage: Letting your policy lapse will make future coverage more expensive and difficult to obtain. Gaps in coverage are red flags to insurers.
Don’t Underinsure: Saving money by reducing coverage limits is dangerous. Underinsurance means you’ll pay out-of-pocket for part of any loss, potentially thousands or hundreds of thousands of dollars.
Don’t Ignore Non-Renewals: If your insurer non-renews your policy, act immediately. Don’t wait until the last minute to find replacement coverage.
The Long-Term Outlook
California is working on insurance market reforms to stabilize availability and pricing. These include allowing insurers to use catastrophe modeling, streamlining rate approval processes, and requiring insurers to offer coverage in high-risk areas if they want to do business in California.
However, these reforms will take years to implement and may not significantly reduce premiums in the short term.
Your Action Plan
- Request quotes from at least three insurers 60 to 90 days before renewal
- Document all home improvements and risk mitigation efforts
- Review your coverage limits with your agent to ensure adequacy
- Implement cost-saving measures that don’t compromise protection
- Budget for higher premiums as the new reality
California’s insurance market is challenging, but coverage is still available for proactive homeowners who understand the landscape and work with experienced agents to find the best solutions.