High claim losses have driven up insurance costs for plenty of homeowners in the Golden State.
California regulators are making reforms to the state’s insurance system, as companies flee amid rising climate risk that they say they aren’t properly compensated for.
Despite high fire risk, the state’s average home insurance rate is $1,225 per year for $250,000 in dwelling coverage, about 14% lower than the national average, according to Bankrate. “We don’t think this makes any sense because today’s climate is very different from 20 years ago,” Rex Frazier, president of the Personal Insurance Federation of California, told Barron’s in June.
That’s changing now. This week, California Insurance Commissioner Ricardo Lara said the state will allow insurers to consider the future risk of climate change when setting prices. Inadequate pricing has driven many insurers away from California, as they believe it’s no longer profitable to underwrite properties in a state with high risk but low revenue. Over the past year, many have either stopped renewing policies or cut off new business in the state.
The reform was applauded by the insurance industry. The American Property Casualty Insurance Association said California’s 35-year-old regulatory system is “outdated, cumbersome and fails to reflect the increasing catastrophic losses consumers and businesses are facing.”
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