State of the California Personal Insurance Industry

State of the California Personal Insurance Industry

| August 02, 2023

The insurance marketplace in California is the most difficult that we've seen in the last two decades...and maybe ever.  Consumers are frustrated with rising rates, brokers are frustrated by the inability to write business and properly protect their clients' assets, and insurance carriers are frustrated by the inability to get the proper rate for the risks they insure in order to maintain profitability. It is truly a vicious cycle.

So, what's the deal with the personal insurance marketplace in California?

Here's a brief overview:

Auto Insurance

  • Costs to repair vehicles are up. This is driven by more advanced technology and a significant rise in the average cost per replacement part on vehicles. For example, the cost to replace a side mirror used to be around $500.  Now, it's triple that amount.  In addition, the global supply of auto parts is down and repair cycles are longer.
  • Frequency and severity of auto accidents are WAY up.  This means that California drivers are not only getting into more accidents, but the costs associated with each accident are also on the rise...a dangerous combination.
  • Labor shortages. The number of skilled auto technicians is decreasing, while auto body repair costs are increasing. It is now more difficult than ever to recruit, train and retain auto technicians that posses the skillsets to properly repair modern-day automobiles.
  • Bodily injury claims are skyrocketing. Large settlements and higher healthcare costs are the key drivers. 

Home Insurance

  • Increased costs to rebuild your home. Material goods (lumber, concrete, etc...) for new residential construction prices are up over 15% since 2021.
  • Increased wildfire risks. Longer wildfire seasons and increasingly disastrous blazes have made it significantly more expensive for insurance companies to operate in California.
  • Inflation. Inflationary pressures are contributing to the rising costs to repair and rebuild homes.
  • Reinsurance rates have increased. Often referred to as “insurance for insurance companies,” this reimbursement system protects insurers from very high claims and catastrophic losses.

Ultimately, insurance carriers are still not collecting enough premium to cover their costs.  A number of large carriers, such as Farmers, State Farm, Allstate, GEICO, and others have completely halted writing business in California.  The carriers that are committed to California still need another 30% rate increase across most of their product lines.

What that means for consumers is that you will continue to see your premiums increase over the next few years.  This isn't personal, and it’s not based on a claim you may or may have not had.  Rather, it’s simply the cost of doing business.

However, there are a few strategies that will help you get through this current insurance market:

  1. Consider Higher Deductibles. This will help save some money on your policy and prevent you from turning in smaller claims that will eventually cause your premiums to increase.
  2. Annual Reviews. Make sure you're getting every discount you're entitled to and that your coverages are adequate for your current stage in life.
  3. Package Your Policies. Bundling your auto and home insurance with the same carrier can save up to 20% on each policy. 
  4. Drive Safe! Tickets/accidents can stay on your auto policy for 3 to 5 years. Each point on your driving record can add an additional 15-20% to your premium.
  5. Enroll in Verified Mileage Programs. Most insurance carriers offer a discount when you opt-in for their verified mileage programs, so take advantage of this opportunity to save.

And, please remember that we are agents for the carriers. We don’t make the rules, we don’t have control over the rates and we don’t make the decision if your policy is cancelled by the carriers.

Hang in there. This insurance market is like the wild west, but it will turn around. As your trusted advisors, we share in your frustration, and are doing all we can to help educate, and ensure you have the best coverage, at the best possible price.