California’s January wildfires could cause insurance premiums to rise 21% statewide, one estimate says. But some other states have it even worse.
Experts say increasingly severe storms and other disasters, combined with rising housing costs, are pushing rates higher.
CNBC considers insurance premiums, and the amount they are increasing, as metrics in this year’s America’s Top States for Business study.
Six months after wind-whipped wildfires killed 30 people and destroyed thousands of homes and businesses in and around Los Angeles, the scenes in Altadena and Pacific Palisades are still horrific, with block after block of burned out homes and businesses.
But every so often, there are small signs of rebirth, from a property owner cleaning up their lot, or workers repairing a home that was merely damaged. Occasionally, one can even see homes being rebuilt — the owner having navigated the complicated permitting process, and, crucially, having managed to obtain insurance.
“The situation in insurance has actually been remarkably stable, considering everything that happened,” said Scott Wilk, an independent insurance agent and owner of the Santa Clarita, California, branch of TWFG Insurance.
That is not to say that premiums are not surging after the wildfires. The online marketplace Insurify projects California premiums will rise 21% this year, even in areas that are far from Los Angeles, in what experts had predicted would be a year of only modest increases in the state.
“An event like that in California just has a really significant impact on how much we project premiums to go up,” said Chase Gardner, data insights manager at Insurify. He added that when insurance companies “are paying out more than they’re bringing in premiums, the more that goes up, the more they need to raise prices.”
In fact, Insurify is projecting premium increases in all 50 states this year, averaging around 8%. California’s increase is not even the largest. That distinction belongs to Louisiana, where premiums are projected to rise 28%. Nor is the phenomenon limited to coastal states. Iowa and Minnesota are also looking at double-digit increases.
“It’s not just a story for areas like coastal Florida or the wildfire prone parts of California. It’s really a much more national story,” said Benjamin Keys, a professor of real estate and finance at the University of Pennsylvania’s Wharton School. “We’re seeing states like Vermont with rising costs related to recent floods. We’re seeing states like Colorado, which historically was a middle of the pack state when it came to the cost of insurance, seeing rapidly increasing insurance costs due to recent wildfires, and increased hail storms in many parts of the Midwest.”
Insurance premiums are regulated state by state, so in theory, a company can’t use a disaster in one state to justify a rate increase in another. But in practice, experts say, there is a ripple effect as companies try to balance their risk by more aggressively seeking premium increases in some states, and by reducing their exposure in others by not renewing policies.
“These insurance companies are national companies, and this could affect things like their overall book of business,” Gardner said. “Even if they’re profitable in ten states, if they’re really unprofitable in one state, that can impact how they think about business and how they think about acquiring new customers.”
Premiums vary widely from state to state, with Florida’s the highest at $15,460 on average as projected by Insurify, though increases in the state appear to have moderated after the state adopted a series of reforms. The lowest average premium is in Vermont at $1,248, despite its recent increases. Even with this year’s 21% increase, California’s projected average premium of $2,930 is less than Insurify’s national projected median premium of $3,520.
