As Hurricane Milton looms over Florida, the state finds itself at the center of the ongoing hurricane menace, making it the priciest in the nation for homeowners’ insurance. Meanwhile, California is grappling with an escalating insurance crisis of its own, but its premiums are still significantly below those of Florida. The California Department of Insurance is currently contemplating what it terms “insurance reform,” which could lead to increased premiums. So, is this reform a blessing or a curse?
A report from the San Francisco Chronicle highlights that both states are wrestling with serious insurance crises, albeit with different natural disasters. Florida frequently faces hurricanes, while California contends with wildfires and earthquakes. Peter Heckathorn, a California native who moved to Florida, recalls facing a staggering $12,500 annual homeowners’ insurance premium before he decided to return to California last year.
After settling in Orinda, California, and comparing insurance quotes, he was taken aback to discover his annual premium was just $3,500. Initially, he kept this news to himself, thinking there might have been an error made by the insurance company or agent. Eventually, he learned that many others were enjoying similar rates, prompting him to inform friends and family that Californians might be blissfully unaware of their insurance luck.
Data from the National Association of Insurance Commissioners shows that as of 2021, the average annual homeowners’ insurance premium in Florida stood at $2,437, the highest in the country, whereas California’s average was $1,403, placing it at 20th nationwide. It’s also worth noting that over 37% of homes in California are valued at over $500,000, compared to only 10% in Florida. This information is a few years old, so it’s probable that home prices and premiums have since risen.
Insurance experts point out that California’s regulatory framework, established decades ago, plays a significant role in keeping its premiums lower than Florida’s. Heckathorn expresses concern that as California moves to reform its insurance policies, it may find itself in a predicament akin to Florida’s.
Current regulations prevent insurers from utilizing catastrophe models to assess and price risk, forcing them to lean on historical data alone. Insurers argue that current rates are too low, which has led several companies to exit California’s homeowners’ insurance market or stop offering new policies altogether. David Russell, an insurance professor at CSU Northridge, underscores that California is unique in having such restrictions.
By the end of the year, the California Department of Insurance plans to roll back various limitations to motivate insurers to remain active in the state and encourage major firms like State Farm and Allstate to resume writing new policies for customers.
Experts largely concur that such reforms are likely to result in higher premiums. Even before any changes take effect, both State Farm and Allstate have already received permission to raise rates by 20% and 34%, respectively, with State Farm also seeking an additional 30% increase. Other large insurance providers have similarly increased rates for their customers by over 10% recently.
