The high cost and low availability of homeowners insurance are hobbling California’s housing market this year, with nearly twice as many real estate agents losing deals compared with last year, according to the California Association of Realtors.
In 2023, about 7 percent of realtors saw a deal fall through because of insurance problems. This year, approximately 13 percent of association members reported similar experiences.
“The insurance challenges are increasing,” Jordan Levine, senior vice president and chief economist for the realtors’ association, told The Epoch Times Oct. 28.
About 31 percent of realtors said buyers were having trouble finding insurance, he said.
And home prices, mortgage rates, and insurance premiums are all higher than in recent years, according to the association.
“Folks are already struggling because of housing supply issues and the growth of our economy and demand, so housing affordability has already deteriorated from where it was a handful of years ago,” Levine said. “Now, annual carrying costs are going up substantially because of the insurance premiums ... and these could be the difference maker for some folks not being able to make that leap into homeownership.”
The problem exists statewide—with one in four members in downtown areas telling the association that insurance issues are affecting business—but it’s pervasive in rural areas, he said.
Looking toward the future, he anticipates more access to insurance, but at higher costs.
“I think the thing that we’ll be able to solve for is availability,” Levine said. “In terms of cost, there’s not a lot of hope for improvement.”
Multiple insurance carriers requested premium price increases of 30 percent or higher in recent months and are currently awaiting feedback from the Insurance Department.
“The problem is that the solution to the problem is going to be higher premiums, and people aren’t going to like that,” state Sen. Roger Niello, vice chair of the Senate’s Insurance Committee, told The Epoch Times Oct. 28.
Insurance companies cite the rising cost of reinsurance—coverage purchased to help cover payouts—and slow-to-adapt California regulations that are preventing the market from operating more freely and encouraging businesses to remain in the state.
Floridians pay about $11,000 per year to insure their home, while premiums average about $2,000 a year in California, the report said.
Some homeowners told The Epoch Times they’re paying significantly more than $2,000 for minimal coverage because they are stuck with the FAIR Plan, a state mandated insurer of last resort financially backed by the industry.
More than 400,000 properties are covered by the FAIR Plan, and the system was overwhelmed with calls earlier this year, according to testimony presented to the Legislature.
Exposure to the plan is one concern expressed by insurance companies.
Seven of the state’s largest insurers and dozens of companies—including State Farm, Allstate, and Farmers—have limited offerings or left the Golden State in recent years citing problems with regulatory structures that they say jeopardize profitability and increase risk.
The industry points to risk of fire, inflation, and regulations that slow down rate increases as reasons companies are reducing coverage in California.
“It’s a real issue,” Niello said. “And it’s a problem because we passed an initiative 30 years ago with an extremely small margin of victory ... in a market and under circumstances that were completely different than they are now.”
That initiative, Proposition 103—known as the Insurance Rate Reduction and Reform Act—was approved by 51 percent of voters in 1988 to strengthen oversight of the industry.
He said updates to the state’s regulations are needed and called for swift action to help keep more companies operating in the market.
“Changes have to be made,” Niello said. “We have to allow for the market to play itself out, and it’s not going to if insurance companies leave.”
Ricardo Lara, commissioner of the state’s Insurance Department, announced last year, with updates coming in March and again in June, a plan that is set to take effect before the end of the year.
His approach will allow for forward looking catastrophe modeling, increase FAIR Plan coverage limits to $20 million per structure, and require insurers to increase by at least 5 percent the number of policies written in high wildfire risk areas.
He vowed to use his authority to improve the market.
Calling the reforms some of the most impactful in recent decades, the governor has repeatedly called for swift intervention.
