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United Policyholders has been surveying California homeowners for several years as insurance options continue to shrink and prices continue to rise. Many California homeowners are reporting double and triple digit premium increases. The problem is impacting renters, condominium owners and condominium associations, and businesses of all sizes.

Generally, every location with some level of wildfire exposure is experiencing significant premium increases.

Is this legal?

The short answer, unfortunately, is yes. And there is no requirement that the insurer provide an explanation. The insurer does have to provide 75 days notice before a non-renewal to give you time to shop around for another insurer, and if they are going to offer a renewal policy, they must give you 45 days notice of the offer, the new premium, and significant changes in the what the policy will cover (California Insurance Code Section 678).

In California, admitted insurers do have to get approval from the California Department of Insurance for any rate increases. Commonly, their requests are for overall single digit increases. However, and this gets a bit complicated, a single digit increase to the insurers’ overall premiums is not distributed evenly across all policyholders. To understand how it plays out, consider this simple example:

An insurer writes 100 policies and charges each insured a $1 premium. So in total the insurer takes in $100 each year. Its losses increase, so it applies to the Department of Insurance for a 5% increase. The increase is approved, allowing the insurer to charge a total of $105 per year. But instead of charging every homeowner $1.05, the insurer does not increase the premium for 95 policyholders and instead doubles the premium for 5 policyholders. So 95 policyholders will still pay $1 at their renewal and 5 policyholders will now pay $2 – a 100% increase for those 5 policyholders but still only a 5% increase overall.

Is this fair? Insurers have to demonstrate to the Department of Insurance that the distribution of the rate increases is also fair. And currently, insurers can show that their increased losses are coming from regions with higher wildfire risk. So homes in those regions or similarly wildfire exposed regions are receiving close to the entirety of the premium increases while more urban/less exposed regions are receiving much smaller increases.

The only way to reverse this trend is to do everything possible to reduce wildfire losses. Thus the focus on mitigation, mitigation, mitigation of wildfire risk at every home, community, and regional level. Please visit the section of our website where we help property owners find out about wildfire risk reduction help and grant opportunities in their area: https://uphelp.org/preparedness/wrap-resource-center/.