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Home insurance prices in California are expected to rise for the next two decades, and all Californians should be prepared to share the burden of higher costs, according to an expert panel that met last month in Sacramento.
In the wake of one of the most costly natural disasters in U.S. history, the recent LA-area wildfires, the panel said the impacts on real estate will continue to grow, and access to homeowners insurance is now a top concern among buyers.
The experts said that in order for insurance to become widely available again, the state would have to attract capital back to the market. The burden of higher insurance premiums must also be shared among all residents, even those in low-risk areas, according to David Russell, director of the CSU Northridge Center for Risk Management and Insurance.
“In high-risk areas, to be able to afford to insure, they’re going to have to raise the premium on someone else. We have a cost-sharing issue,” Russell said. “I’ve seen huge rate increases in my own policy, even though I’m in a low-risk area, and I [have] filed no claims, ever. So, these risks are being socialized, and there are California citizens who don’t want to pay a part of the premium that someone else has imposed on the system.”
Over 55 percent of agents who were recently surveyed by the California Association of Realtors said access to homeowners insurance was their No. 1 concern, more than double from last year.
Agents also said that insurance availability was nearly tied as a top concern with affordability as the greatest challenge facing the industry this year, outpacing inventory and interest rates.
“Most of our Realtors are having to address the insurance problem up front,” said Sanjay Wagle, senior vice president of governmental affairs for CAR. “Traditionally, it’s just been the mortgage, taxes, insurance, and now, that insurance component is really affecting affordability depending on the area you live in…[it has] become a high priority.”
The panel noted that construction workers are being pulled toward Los Angeles, where there is high demand after the fires, and where they can earn more than in other areas of California.
Panelists encouraged homeowners to check to make sure they aren’t underinsured, which they noted was becoming more common, particularly among those who lost homes in the Southern California wildfires earlier this year.
“Altadena families underinsured by millions are losing generational wealth,” said Emily Rogan, senior program officer at United Policyholders. “Purchase as much additional replacement cost insurance as you can.”
The panel said that both the state and individual homeowners needed to do more than simply buy insurance to mitigate the risk of natural disasters.
“We cannot insure our way out of this problem,” said Michael Wara, director of the Stanford University Climate & Energy Policy Program. “The thing that is not happening enough is actual physical risk reduction. We need to reduce risk so there is less risk to transfer, and so we can afford that risk transfer.”
