On Dec. 10, the Santa Cruz County Board of Supervisors authorized Supervisor Zach Friend to write a letter to Gov. Newsom, on behalf of the Board, regarding the current state of emergency for homeowners and commercial property insurance, requesting the governor take immediate steps to strengthen and stabilize the property insurance market through regulatory and legislative action.
Here is the staff report:
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California is facing a growing homeowner and commercial property crisis across the state. While the California Insurance Commissioner’s Office continues to implore insurance providers to return to the marketplace and write policies, progress has been stagnant with little reprieve for residents in Santa Cruz County and across the state.
The lack of available insurance options and long-term viability of the California insurance market could halt real estate transactions and delay or prevent new housing development, worsening the existing housing crisis.
Additional action is needed through action by the Insurance Commissioner, Governor, and State Legislature to stabilize the marketplace.
Supervisor Friend is seeking authority to write a letter to the Governor on behalf of the Board requesting that he take immediate action to strengthen and stabilize the property insurance market.
Two Largest Firms Pause
Last year, two of the State’s largest insurance carriers, representing over 27% of the insurance market in California, announced that they would stop issuing new homeowners and commercial property insurance policies in California.
Several other insurance carriers announced plans to limit new policy origination, especially in high fire severity zones, such as much of Santa Cruz County.
We have seen how the reduction of insurance options in the state has had a direct negative effect on consumer access to coverage, impacting homeowners and businesses. A lack of home insurance coverage leaves homeowners vulnerable and also has fiscal implications as homeowners may be unable to secure a mortgage without coverage.
Home Sales Affected
A recent survey conducted by the California Association of Realtors from across the state found that 13% of realtors reported they had a transaction fall out of escrow because a buyer could not find insurance. This figure has nearly doubled compared to the 7% of realtors who reported this happening in 2023.
The vast majority of buyers who were unable to obtain homeowners insurance stated that it was due to denial of coverage, with a small percentage stating that the premium was too expensive.
Pricey FAIR Plan
Santa Cruz County residents are left with the sole option of turning to the insurance of last resort, the California FAIR plan, which is often significantly more expensive.
The FAIR Plan, a high-cost temporary insurance policy is a state-established risk pool intended to operate as a safety net while residents seek traditional insurance. Instead, it is increasingly being relied on by homeowners in the region as the only option available to them.
In some of our most vulnerable areas of the county, enrollment in the FAIR plan has increased by a factor of ten between 2019 and 2024.
For example, in Boulder Creek 29% of homes with insurance policies are now enrolled through the FAIR plan.
This issue is not isolated to our region, however, and across the state there has been a 41% increase in FAIR Plan policies between September 2023 and 2024. One of the limitations of a standard FAIR plan is that it only covers damage from fire, smoke, and lightning. This limited coverage requires many owners to seek additional secondary insurance for other necessary liabilities, leading to significant annual costs to protect their assets and homes.
As part of Commissioner Lara’s comprehensive Sustainable Insurance Strategy, final wildfire catastrophe modeling regulations were submitted to the Office of Administrative Law on Nov. 14, 2024, for approval. The new regulations introduce a requirement for insurers to increase their policy offerings in underserved areas as a condition of incorporating catastrophe modeling into ratemaking.
While these actions are important next steps at the state level to secure and stabilize the volatile insurance market, reform will not take place until OAL approval is complete, and it may take a few years for the market to react.
Residents in Santa Cruz County are currently struggling with obtaining necessary insurance and are left with uncertainty for their future. Because these proposed regulatory changes will take time and inevitably lead to higher premiums for property owners, it is critical that we advocate for the long-term stability and request our state partners to more promptly prioritize this issue.