Foreword.
There is a lot of information in this message, but please find the time to read to the end as the information is very important.
The basics.
Starting simple: Insurance is a social device for sharing and transferring risk in order to protect against uncertainty. At its core, insurance is a contract in which the risks of a few are shared by the many. There is an exchange of a small certain expense (premium) for a large uncertain loss (claim).
What that means to the average person, is that payment is made, and generally nothing happens.
We will say an insured person, Jane, has a homeowner’s policy. Jane spends $2,000 a year for homeowners’ insurance.
For 10 years, there are no claims, and nothing changes. At the end of 10 years, Jane has paid $20,000 for insurance.
At 10 years and 1 day, Jane’s whole house burns down. Because Jane had insurance, her house gets rebuilt, costing over $300,000. Jane paid $20,000 over 10 years and got her house rebuilt; the other $280,000 came from others who are insured.
This example does not include personal property, loss of use, or the other coverages typically afforded by a homeowner’s policy, so realistically the figure to return Jane to her status before the fire is much higher.
The home insurance situation in California.
Based on the average homeowner’s insurance by state analysis2, the cost of home insurance in California is second lowest in all the US. That sounds great until we think of the fires California has been experiencing in recent years, causing our skies to be greyed out with smoke for months at a time. In 2020 and 2021 alone we lost over 4,300,000 acres3 to wildfires.
These two facts combined make for a very bleak situation in the insurance world. Widespread loss and the 2nd lowest premiums leave California in a dire situation where there is not enough money coming in to keep up with the losses.
Remember Jane?
Her house cost $300,000 to rebuild, the $280,000 over Jane’s premium payments was handled because the loss was not widespread. When 4,300,00 acres gets burned, we are not talking about a single house being rebuilt, we are talking about thousands, and the fires have been an issue for a lot longer than the last two years. To put the nail in the coffin, the cost to rebuild is driving higher and higher.
The auto insurance situation in California.
According to J.D. Power1 A record high number of serious collisions, skyrocketing used-vehicle prices, and surging repair costs have created an unenviable scenario for auto insurers: raise rates or go out of business.
It is not all grim news though. Participation in usage-based insurance programs, which monitor driving habits and assign risk and pricing, accordingly, has doubled since 2016. Price satisfaction among customers participating in these programs is higher on average.
We have multiple companies who offer these usage-based programs, with more moving towards offering them.
Conclusion.
If you ever have any questions, we want you to know as your agency we are continuously monitoring current events and are here to assist in digesting the information, just as we have been since 1936.