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California insurers get approval for rate increases as state seeks to bolster coverage

California plans to prevent insurers from moving out of the state by granting many of their requests for premium increases, some of them in the double-digit range.

That's the plan state officials are banking on to stabilize California's insurance market in an environment where surveys show people are willing to pay more for policies while investing more in their properties to at least maintain existing insurance coverage. There are always exceptions, but much depends on whether the property owner has a mortgage. Mortgage lenders require insurance as a condition of purchasing property.

And all this is happening while a survey by consumer protection organizations indicates that property owners are getting less for their money in terms of replacement costs for reconstruction.

The state's insurance commissioner, Ricardo Lara, stressed to lawmakers at a hearing in mid-May that access to insurance is a priority. But premium increases, some of them in double digits, are part of the agreement, which is described as the state's sustainable insurance strategy.

“My staff approved the filing of CSAA Insurance Exchange homeowners insurance premiums just last Friday. This ensures that CSAA can continue to issue homeowners insurance under the AAA Northern California brand,” Lara said in her testimony.

Governor Gavin Newsom underscored this point by supporting the strategy to streamline the process for rate increases.

Of the 20 requests for premium increases submitted to the California Department of Insurance in the last six months, 10 have been approved so far.

The highest request for up to 26.9 percent higher premium rates was approved in March by General Insurance Company, which ranks tenth in market share in California.

State Farm and the Automobile Club's Interinsurance Exchange followed, with their requests for premium increases of up to 20 percent each being approved.

A Travelers subsidiary, Standard Fire Insurance Co., had requested a premium increase of up to 21.7 percent and received approval for a maximum of 15.3 percent.

Four of the ten applications were approved with up to 6.99%. Anything above that triggers a state-ordered hearing for the insurance company.

The insurance industry says the increases are a matter of survival. For every dollar collected in insurance premiums, $1.09 is spent on expenses and claims payments. That's one cent more than last year.

Of the ten applications and approvals to the state to increase insurance premiums, only two were submitted by listed companies that disclose their earnings and other financial data.

“The industry is losing money. That's why so many companies are asking for increases. They need to break even and be able to make a small profit,” said Janet Ruiz, director of the Insurance Information Institute's western office. “The cost of reconstruction has risen faster than inflation. All prices have risen there.”

She continued: “Insurers are reacting, they are not driving the market. Inflation has gone down, but prices are not coming down. We have to replace these costs with premium increases.”

Jeff Okrepkie has noticed that premiums are rising and insurers are pulling out of the state. He is accountable to the industry as an insurance broker at George Petersen Insurance Agency and to his constituents as a Santa Rosa City Councilman.

“Yes, they're getting less for more money,” Okrepkie said. “It's what the market dictates,” he said, acknowledging that his job has become “harder” at best.

“We're working harder (on customers) than ever before,” he said. “During the time when we normally get new business, we're trying to keep customers insured.”

Okrepkie broke down the numbers hourly. About five years ago, the Santa Rosa firm's brokers spent about 40 minutes per hour acquiring new business accounts and the remaining 20 minutes retaining existing clients.

“Now it’s reversed,” he said.

The turbulence in the industry has spread from business and private customers to freight forwarders and brokers.

According to a 2023 Insurance Information Institute consumer survey titled “Homeowners’ Perceptions of Weather Risks,” 32% of homeowners reported being affected by weather in the past five years.

The survey also found that 40 percent of homeowners have taken steps to better protect their property, rising to 47 percent in the West.

Amy Bach, executive director of United Policyholders, a San Francisco-based consumer advocacy group, found in her recent survey that two-thirds of those affected by natural disasters did not have the insurance needed to rebuild.

Bach blames the insurers and warns the insured.

“Everything costs more today. But insurers continue to use faulty software to calculate replacement costs,” she said, calling the costs imposed on policies “flawed.”

Bach insists that policy coverage amounts do not match demand, especially given changes in building codes. In addition, most insured people put their policies aside and do not check what type of coverage they need, or find they are underinsured.

State lawmakers have been involved in the search for a solution. In early May, the Senate passed a bill (SB 1060) by Senator Josh Becker (D-Menlo Park) that would require property insurers to consider building security measures when writing policies to reduce the risk of wildfires.

Anna Harden

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