SACRAMENTO, Calif. — California’s homeowners insurance market is in crisis, and it will get worse for some people before it gets better.
More and more homeowners are finding the so-called ‘option of last resort’ is now their only resort, and it’s about to get more expensive for many of them.
That option is called the California FAIR Plan. It’s offered to homeowners who can’t find any other insurance, often because their home is located in a wildfire-prone area. Known as the “insurer of last resort,” it is becoming tens of thousands of homeowners’ only resort. It only covers a few perils – including wildfires – so homeowners need to buy an additional policy for other coverage. It’s also usually more expensive than insurance bought on the private market, and the price - for many - is about to go up, starting with those renewing in December. It could be as much as double.
“California FAIR Plan has a cap that (customers) will not see more than 100%. But it can still be very impactful, especially with those if they're already paying $9,000 a year for the FAIR Plan. That can easily jump to $18,000,” said Aurora Mullett, managing partner of Sky Insurance Group, an independent insurance broker based in Rocklin.
That’s because the California Department of Insurance (CDI) recently approved a FAIR Plan rate increase of 15.7%, but that’s an average across the state. Some people in the most wildfire-prone, high-risk areas could see their rates as much as double. CDI also approved the FAIR Plan’s use of technology called ZestyAI in determining on a property-by-property basis whether a home is at higher or lower risk for damage due to natural disaster. As such, homeowners in some areas could see their premium decrease.
Michael Soller is CDI Deputy Insurance Commissioner of Communications & Press Relations. He told ABC10, “according to FAIR Plan data most policyholders (~80%) would see a premium change between -35% and +35%. Our goal is that more people find a policy in the normal market, so the FAIR Plan truly is a last resort not a first.”
California is facing a crisis of affordability and availability when it comes to homeowners insurance.
As of late September, seven of the top 12 insurance companies in California's homeowners market have paused or limited new business in the state since 2022. They include State Farm, Farmers, Allstate, USAA and Nationwide. Companies cite a growing risk of wildfires, rising costs of home repair and rules meant to protect consumers, which they find restrictive.
Under California law, insurers have to get CDI's approval before raising rates - which companies cite as a reason they've pulled back from doing business in the state, saying the approval process is cumbersome and takes too long. Back in September, California Insurance Commissioner Ricardo Lara announced a host of proposed reforms, including a goal to reduce the time it takes to approve a rate request. Currently, that process can take more than six months.
Soller said the FAIR Plan requested a 48.8% rate increase, which was CDI reduced to 15.7% before approving it in July.
"FAIR Plan included expenses that are not allowed under our rules, which explains the difference between the amount requested and ultimately approved," Soller said.
THE TOLL ON MENTAL HEALTH
The homeowners insurance crisis is having a negative impact on the mental health of not only homeowners but also the agents and brokers selling them insurance.
“The exodus started to happen where a lot of insurance companies just left altogether in California,” Mullett said.
ABC10 spoke with her from Tennessee, where she moved earlier this year due in part to California’s homeowners insurance crisis. She still feels its effects every day, she said.
"I just helped a senior yesterday that was basically telling me that if I couldn't find her something lower, she had to choose between her insurance and eating," Mullet said. “It's a mental health toll every single day having to make the phone calls…There's just so many people that are in this situation, but it never stops.”
DISCOUNTS ARE AVAILABLE
There is a way for homeowners to earn a discount on their FAIR Plan premium, but it can cost money to save money.
There’s a list of wildfire protections – known as home hardening – people can do on their property. They include tree trimming, upgrading to multi-paned windows and moving sheds and outbuildings more than 30 feet away from the home. FAIR Plan customers are receiving that list in the mail right now, though some details are available HERE. A homeowner can also be part of something called a Firewise USA community and be potentially eligible for a FAIR Plan discount there.
"There are separate discounts that can be combined for 'protecting the structure' and 'protecting the immediate surroundings,'" Soller said. "In addition, FAIR Plan has an existing 10% discount for homes in a Firewise USA community."
Similar discount programs will be coming out for private insurers as well in coming months, Soller said, as part of the department’s new insurance safety framework 'Safer from Wildfires,' which it created with Cal Fire, CalOES and other state agencies.
More insurance market reforms are in the works too. They include plans to coax insurance companies to return to fully writing homeowners policies in California. They also include goals for getting many people off the FAIR Plan and back into the private insurance market.
"Competition is what is needed, not a growing FAIR Plan," Soller said. "While we work on implementing the Sustainable Insurance Strategy, we need to make improvements to the FAIR Plan so it is providing the best coverage options possible."
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