Insurance exodus

Navy veteran Bryan Peterson and his family have loved living in their El Cajon, Calif., home, with its backyard waterfall pool and whirlpool bath. But after his 2023 Travelers Insurance homeowners premium zoomed to $12,000—more than five times last year’s cost—he knew he had a problem.

“I started doing the math and realized that we actually were going to have to sell,” Peterson said. Either that or find more affordable coverage.

Peterson, who lives in a wildfire-prone area, is one of many homeowners in high-risk places having trouble finding coverage amid skyrocketing insurance costs.

California and Florida homeowners have been hit hardest. Insurers are beginning to flee both states, and real estate agents report home deals collapsing because buyers can’t find coverage. Headlines blame climate calamities for home insurance woes, but ­natural disasters aren’t the only cause.

Industry experts and California insurers say regulations don’t let companies raise rates enough. State Farm and Allstate recently stopped selling new home policies in California. In July, Farmers Insurance began limiting new California policies.

“Homeowners insurance premiums in California are artificially low,” says Janet Ruiz, a California representative with the Insurance Information Institute.

California wildfires have destroyed thousands of homes in recent years. Rebuilding costs have escalated, even as more people move to high-risk areas. Yet state regulators restrain insurance companies from raising rates accordingly, Ruiz says.

Insurance regulations are based on California’s 1988 Proposition 103, credited with saving consumers billions of dollars. But it bars California insurers from factoring in predicted future losses from disasters, allowing only limited historical data to set rates. The rate increase Peterson experienced would have been OK’d based only on previous years’ data.

And unlike in every other state, Prop 103 prevents insurers from incorporating the cost of reinsurance, which is currently rising, into premiums. Reinsurance is backup coverage insurers must buy to protect themselves from catastrophic losses.

California’s average home insurance ­premium of nearly $1,400 is less than the national average of $1,900, but that doesn’t help if homeowners—especially in fire-prone areas—can’t find affordable private coverage.

The California FAIR Plan is the last line of defense for such homeowners. It’s a state-mandated program that’s financially backed by licensed state insurers to provide coverage in hazardous areas.

Peterson ultimately qualified for FAIR. Now, he pays around $5,000 annually for homeowners insurance. It covers only his house structure. A second policy through Mercury ­protects furniture and extras like pool equipment.

The California Department of Insurance, which regulates rate increases, held a July workshop to ­consider allowing reinsurance costs and future risks in setting premiums. Its decision is pending.

A house in Fort Myers, Fla., destroyed last year by Hurricane Ian Eva Marie Uzcategui/Bloomberg via Getty Images

In Florida, where the average homeowners premium is $6,000, ­man-made problems more than acts of God are blowing insurers out of the state.

Litigation abuse and insurance fraud have driven Florida’s insurance debacle for years, according to Mark Friedlander, the Insurance Information Institute’s Florida spokesman.

Friedlander explained that before recent laws passed, homeowners could assign insurance benefits to third ­parties like roofing contractors.

Unscrupulous contractors would routinely inflate repair costs and ­submit them to insurance companies. When insurers denied claims, contractors sued on behalf of homeowners, usually without their knowledge.

Insurers have spent about $3 billion annually defending themselves against Florida homeowner insurance lawsuits, which constitute nearly 80 percent of such lawsuits nationwide. “That’s unsustainable,” Friedlander says.

Despite new legislation to discourage frivolous lawsuits and fraud, courts will be clogged for years handling cases already filed. These include more than 280,000 new suits hastily filed days before Gov. Ron DeSantis signed another law in March to discourage such litigation.

Tom and Jody Comfort, Minnesotans with a Florida home, desperately needed coverage after Florida regulators last summer declared their homeowners insurance company, Weston, insolvent.

New quotes ranged from $12,000 to $14,000 annually for a policy from Citizens Property Insurance Corp., the state-run insurer of last resort. It’s the only insurer that will cover the Comforts’ condominium unit. A ­broker eventually negotiated Citizens’ coverage for about $7,500.

But if disaster claims deplete Citizens’ reserves, the state can levy surcharges on potentially every Floridian to replenish the fund. Experts say this government insurer doesn’t charge consumers enough to cover risks, yet accounts for 18 percent of Florida homeowners insurance. It’s the only state where the state insurer is the largest insurer.

Over the last 18 months, regulators have declared seven Florida insurers insolvent and added 18 to their watch list, while 15 insurers have halted new business. Farmers Insurance stopped selling its name-branded policies in Florida in July, and AAA won’t renew some home and auto policies.

Some homeowners with paid-off mortgages—often retirees on fixed incomes—are forgoing insurance because of exorbitant costs. That leaves them vulnerable.

Ruiz says that regardless of what regulators or states do to alleviate insurance problems, homeowners need to carefully consider where they choose to live: “It all comes down to understanding the risk.”