As home insurance becomes more difficult and expensive to obtain in California, fewer housing developments are being built, according to experts.
“Today, we are still not building condominiums in most of the state because of this insurance crisis,” Dan Dunmoyer, president and CEO of the California Building Industry Association, told lawmakers during the Senate’s Insurance Committee’s hearing Jan. 24. “This is a real crisis, and it’s real for our consumers.”
Home insurers have fled the state in record numbers, with seven of the top 12 companies leaving in 2023, according to the California Department of Insurance.
They’ve done so, they say, citing high inflation, rising risks, and an inability to recoup costs—due to the Golden State’s regulations covering rate approvals and allowances.
The insurance problem began in earnest in 2018 and worsened after years of deadly wildfires that scorched millions of acres and burned thousands of homes, resulting in billions of dollars in payouts across the industry.
Additionally, dozens of small businesses are impacted by the predicament, insurance experts said.
“I can assure you that ... 90 companies are on the sidelines right now and have been for well over a year,” John Norwood, representing the Independent Insurance Agents and Brokers of California, said during the hearing. “Our members are desperate for a return to a competitive insurance market where insurance is available to our customers.”
With limited availability to purchase insurance for new projects and rules that limit coverage amounts for buildings on the so-called FAIR plan—an insurer of last resort backed by the industry—fewer homes are being built across the state.
“Our housing stock is jeopardized by a lack of insurance,” Sen. Susan Rubio, chair of the insurance committee, said during the hearing. “We’re at the brink of really falling apart.”
Affordable housing developments are significantly impacted by rising insurance costs because rent prices are kept below market to satisfy affordability mandates, according to experts.
With insurance premiums escalating and often difficult to obtain for condominium owners, sales and construction are dropping, down 7 percent and 14 percent respectively, in 2023, according to the most recent data from the California Association of Realtors and the Census Bureau.
Such obstacles complicate the state’s goals of adding 2.5 million more housing units by 2031 and come at a cost to Californians, lawmakers were advised at the committee hearing.
“California’s outdated insurance framework is failing families and consumers,” Laura Curtis, assistant vice president for the American Property Casualty Insurance Association, said during the meeting.
Citing regulations that are impeding the ability of insurers to operate, she said swift change is needed to bring relief to homeowners.
“Urgent action is still needed to enact regular reforms to restore the insurance market and safeguard consumers’ access to coverage,” Ms. Curtis said. “This includes streamlining the rate-making process and eliminating the obstacles that have led to this crisis.”
Insurance Department Commissioner Ricardo Lara told lawmakers that he is working to address concerns—including allowing insurers to recoup certain costs that previously were disallowed—in attempts to stabilize the market.
Urgent action is needed because of the severity of the problem and the potential for it to impact housing availability and affordability, he said.
“Our insurance market is at a crossroads,” Mr. Lara said. “For many Californians, this is an insurance emergency.”
