Hurricane Milton is currently making its way toward Florida, a state infamous for having the highest home insurance rates in the nation due to its consistent battle with hurricanes. At the same time, California is facing its own insurance crisis, mainly driven by wildfires and earthquakes, yet its insurance premiums are considerably lower than those in Florida. The California Department of Insurance is now looking into what they refer to as “insurance reform,” which could potentially lead to higher premiums for residents. So, is this reform a blessing or a curse?
Both California and Florida are grappling with severe insurance crises, albeit due to different natural disasters. While Florida contends with hurricanes, California is challenged by wildfires and earthquakes. Peter Heckathorn, a California native who later moved to Florida, recalls having an annual homeowners insurance premium of $12,500 before moving back to California last year.
Now residing in Orinda, California, Heckathorn received an annual premium quote of just $3,500 from his insurance broker. Initially, he kept this new rate to himself, worried there might have been an error on the broker’s part. However, when he learned that others were seeing similar low rates, he began to share with friends and family that Californians seemed “blissfully unaware of their good fortune.”
Data from the National Association of Insurance Commissioners reveals that the average annual homeowners insurance premium in Florida was $2,437 in 2021, the highest in the country, while California’s average stood at $1,403, ranking it at number 20. Notably, over 37% of homes in California exceeded $500,000 in value in 2021, compared to just 10% in Florida. Given the shifts in the market since then, it’s likely that both home prices and insurance premiums have risen.
Insurance experts indicate that regulations established in California decades ago play a significant role in keeping premiums lower than those in Florida today. However, as the Golden State moves toward insurance reform, residents like Heckathorn are anxious about what that could mean for the future.
Currently, California law prohibits insurers from using catastrophe models to assess and price risks, forcing them to rely solely on historical data. Insurers argue that current pricing is too low, prompting many companies to exit the California homeowners insurance market or to stop writing new policies entirely. David Russell, an insurance professor at California State University, Northridge, highlights that California is the only state with such restrictions.
The California Department of Insurance intends to lift these restrictions by the end of the year, with the goal of luring insurance providers back to the state and encouraging major firms like State Farm and Allstate to start offering new policies again.
Experts generally agree that these changes will likely lead to increased premiums. Even before the reforms kick in, State Farm and Allstate have already received approvals to raise their rates by 20% and 34%, respectively. Furthermore, State Farm has filed for an additional 30% increase. Other major insurance companies have also recently increased their rates by over 10% for their customers.
