California’s Homeowners Insurance Market Challenges
A recent panel discussion in Sacramento, hosted by the Center for California Real Estate (CCRE), highlighted the pressing issues in California’s homeowners insurance market. The event brought together insurance and risk professionals to address concerns related to insurance availability, pricing, and long-term risk mitigation.
Rising Premiums and Construction Costs
Michael Wara, director of Stanford University’s Climate and Energy Policy program, warned that insurance premiums in California are likely to continue rising for the next 10 to 20 years. The panel emphasized that stabilizing the market requires not only pricing adjustments but also broader risk-reduction efforts. David Russell, director of CSU Northridge’s Center for Risk Management and Insurance, stressed that restoring capital to the market is crucial to expanding access to insurance. He noted that increased premiums will affect both high- and low-risk areas, creating a “cost sharing issue” that necessitates cross-subsidization across risk zones.
Challenges in Rebuilding and Risk Mitigation
Rising construction costs were identified as a significant factor contributing to insurance pressures. John Norwood, lobbyist for the Independent Insurance Agents and Brokers of California, pointed out that labor shortages in certain regions are complicating rebuilding efforts, which can impact insurer exposure. Norwood also raised concerns about the growing reliance on the California FAIR Plan, the state’s insurance program of last resort, describing it as overextended due to recent wildfire losses leading to billion-dollar assessments.
Recommendations for Homeowners and Policymakers
Emily Rogan, senior program officer at United Policyholders, urged homeowners to reassess their policy limits, noting that underinsurance remains widespread. “Altadena families underinsured by millions are losing generational wealth,” she said, recommending the purchase of additional replacement cost coverage when possible. The panel agreed that insurance cannot be the sole strategy for addressing wildfire risk. Wara emphasized the importance of physical risk reduction measures such as home hardening and vegetation management, stating, “We cannot insure our way out of this problem.”
Path Forward
The panelists underscored that addressing California’s insurance challenges will require coordinated efforts across insurance, real estate, and public policy sectors. Norwood added that current regulations require insurers to offer discounts for risk mitigation, but these are difficult to implement unless rates reflect actual risk levels. Achieving rate adequacy would allow carriers to properly recognize property-level improvements.
