The Golden State

Ahhhhh, California. The Golden State. The state where you need a helluva lot of gold to live.

I dug into the notice we recently received about our homeowner’s insurance premium increases, and what I found isn’t pretty.

The last couple of years we’ve paid $6700/year for homeowner’s insurance with a $1000 deductible. That’s a lot, given that the national average is about $1400/year. That price is/was way up from five years ago, when we had to go shopping for insurance after being dropped by our carrier because of wildfire risk. At that time we found that Traveler’s would insure us if (a) we paid their big price increase, and (b) we consolidated all our insurance (homeowner’s, auto, umbrella, etc.) with them. We did that, as being able to get homeowner’s insurance is one of the things that keeps your property valuable. And of course, the hedge against catastrophic events.

That was five years ago. Fast forward to today, and insurers are taking a much harder line on wildfire risk. After years of big fires, almost all in northern CA, they’re moving to a computer-modeled risk scale that depends on satellite photos of your property. The software analyzes photos and assigns a risk rating to your property, and that’s used to decide if the company will insure your property and/or for how much. You cross their computer-generated risk score threshold, they’re not going to insure you. No discussion.

What I’m finding is that (a) most companies will now not even give us a quote, and (b) Traveler’s is doing us a favor with a quote refactored with the industry’s new models. Our $6700 premium / $1000 deductible policy is now renewable as a $23,000 premium / $10,000 deductible. A 400% cost increase.

What the insurance industry is saying is that they’re getting out of CA homeowners policy business, or if they stay, you’re going to have to be wealthy to afford their coverage. That may be a rational business decision, but it creates an irrational situation. Without insurance, your property value is essentially zero – you can’t sell it. And of course if it burns down and you have no other savings, you’re homeless. There are hundreds of thousands of homes and homeowners in this situation, maybe millions if you include Oregon and Washington.

I predict there will be some kind of regulatory relief for those in our situation. You just can’t let hundreds of thousands of homeowners’ equity drop to zero. But that will take time, probably years. So in the meantime I’m either (a) going to pay the usurious premiums for a few years, and/or (b) try to find another insurer who will write a true catastrophic coverage policy, something like a $5-10K premium with a $100K deductible, or even $200K. I would be OK with that. We don’t use our homeowner’s insurance for any small claims – in 18 years here, we’ve never actually made a homeowner’s insurance claim. We’re the perfect customer, other than the fact that we live in a semi-rural area with trees. In the Golden State.