California Homeowners Insurance Legislation Will Raise Premiums By 40% across the State · Consumer Federation of America

“Nothing in California law stops insurance companies from buying reinsurance to reduce their losses,” Hunter explained. “The current rules allow sufficient dollars for insurers to purchase reasonably priced reinsurance. Current protections simply prevent insurance companies from jacking up rates on homeowners to cover excessive costs in the unregulated global reinsurance market.”

Hunter also highlights industry data showing that California has long provided a better than average profit environment for homeowners insurance companies, even after accounting for the disastrous wildfire seasons of 2017 and 2018: 8.3% average annual return on net worth in California vs. 5.5% return countrywide.  He notes that once insurers receive the billions of dollars of subrogation payments from PG&E stemming from the utility’s settlement with insurance companies over wildfire liability, the industry data will be revised to further increase companies’ profit margins in California.

In Florida, after two bad hurricane seasons in 2004 and 2005, Hunter helped the state craft a response to exorbitant premium increases and non-renewals. Central to the problem was that insurance companies were including their reinsurance costs in customer premiums. The key reform the state adopted, which saved Floridians billions of dollars at the time, was limiting the amount of reinsurance that could be foisted upon homeowners. But, as Hunter wrote, “[t]he legislation under consideration in California would do precisely the opposite and allow insurers to include in customer premiums the same unregulated costs that devastated Florida after it and neighboring states faced consecutive years of hurricane catastrophes.”

In his letter, Hunter points out that while Californians on average pay much less for home insurance than the national average, there are many in wildfire prone areas facing extremely high premiums. In order to address that, energy and resources should be focused on reducing the threat of wildfires and hardening homes to mitigate the risk, but the industry legislation ignores that basic principle.

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