California’s Insurance Market in Crisis

Written by Apartment Management Magazine on . Posted in Blog

By Grant Otter, Heffernan Insurance Brokers

The headwinds facing the global Commercial Property and Casualty insurance market have gotten stronger, with trends over the past five years being of “major concern” in nearly every line of business for habitational property owners and managers. As members of the Apartment Association of Greater Los Angeles, it is crucial to stay abreast on the evolving insurance market landscape to make well-informed decisions regarding your insurance program. 

In this article, we take a moment to dive into the current California Property insurance market and offer some valuable advice to Apartment Association of Greater Los Angeles members and rental housing providers on securing the best coverage for their investment assets.

Wildfires have burned nearly 10 million acres of forest and destroyed 39,000 homes in California over the last five years, providing a glimpse at just how dire the state’s climate crisis has become. At a time when it’s more vital than ever for property owners to have adequate insurance coverage, many carriers have decided to no longer insure homes in certain parts of the state, while others have left the property insurance market altogether. 

Trends in the California Property Insurance Market

Last year, two insurance industry giants pulled back from California’s home and property insurance market due to increasing wildfire risk and soaring construction costs and prompting the insurers to stop writing new policies in California, the nation’s most populous state. State Farm announced it would stop accepting applications for all California business and personal lines of property and casualty insurance, citing inflation, a challenging reinsurance market and “rapidly growing catastrophe exposure.” As a result, many California residents are left with little to no options for homeowners and property insurance — particularly those with properties in areas most at risk of wildfire damage.

Rising Premiums. The property insurance market in California has experienced a noticeable uptick in premiums. This increase can be attributed to various factors, including the growing frequency and severity of natural disasters such as wildfires, and record snow and rainfall. Natural catastrophic losses are poised to exceed $100 billion for the fourth consecutive year putting immense pressure on front line property underwriters and their reinsurers. 

Insurers are adjusting their rates to account for these heightened risks, impacting property owners’ margins. Construction costs have also surged, with inflation rates reaching +9.1% in June of 2022, the highest since November 1981. Building material costs have increased at even higher rates in recent years. Reinsurance is about to “hit-up” the primary insurance market with another 10%-15% rate increase year over year. Reinsurance is a type of insurance for insurance companies that allows insurance companies to reduce financial risk by transferring some of the risk to a third party. The reinsurance contracts renew every January and July of each year.

Coverage Limitations. Insurers are becoming more cautious and selective about the risks they underwrite. This has led to increased scrutiny of property conditions and location-specific vulnerabilities. Some areas may face limitations in coverage, particularly in regions prone to natural disasters, like high fire zones and flooding in coastal regions. Owners are sometimes forced to choose much higher deductibles due to increased insured to value underwriting mandates. For example, named windstorms and wild fires are being specifically excluded or limited in coverage terms. This is a constant juggling act for client and broker to identify these annual changes.

Some Advice for Rental Housing Providers

Risk Assessment and Mitigation. Have a third-party broker (not your current broker) conduct a thorough risk assessment of your properties and current insurance program to identify potential vulnerabilities and exposures to your margin. There may be policies and procedures you are not currently implementing that could create dividends and reduce your overall cost of insurance. Implementing risk mitigation measures such as improving building infrastructure, installing fire-resistant materials, and contracting with a fire monitoring company can have a positive impact on your premiums.

Work With a Broker and Underwriter Who Understands the Real Estate Industry. Securing comprehensive coverage at a reasonable cost may be challenging right now. Off the cycle of your renewal date, work with an insurance broker who knows your industry and can help secure terms of coverage well in advance of your normal renewal date. This will take “heat” off underwriters who are under pressure to renew their current clients. Given the evolving market conditions, it’s essential to explore multiple insurance providers to find the most favorable terms and pricing. Underwriters who specialize in property insurance for habitational risk will help ensure you receive the best coverage options tailored to your specific needs.

The California FAIR Plan

Absent any other alternatives, property owners have had to obtain insurance coverage through the California FAIR Plan program. The California FAIR Plan is a state-mandated program designed to provide basic property insurance coverage to property owners who are unable to obtain insurance through the traditional insurance market, including non-admitted carriers. The plan was created to ensure that property owners, particularly those in high-risk areas prone to wildfires, can still access essential property insurance. The FAIR Plan is a syndicated fire insurance pool comprised of all insurers licensed to conduct property / casualty business in California and was originally established by statute (California Insurance Code sections 10091 et seq.) in August 1968 as an insurance placement facility. 

The FAIR Plan provides basic property insurance coverage, typically covering fire and other perils specified in the policy. It is not as comprehensive as a standard homeowners insurance policy but serves as a last resort for those unable to obtain coverage elsewhere, including non-admitted carriers. FAIR Plans are typically more expensive than standard home insurance policies. In California, the average homeowner pays $1,428 for $250,000 in dwelling coverage while under a FAIR Plan, homeowners should conservatively expect their homeowner’s insurance rate to be higher than the statewide average.

The FAIR Plan issues policies on behalf of its member companies. Each member company participates in the profits, losses, and expenses of the Plan in direct proportion to its market share of business written in the state. However, The FAIR Plan has not been rated or evaluated by A.M. Best.

Consider Consolidation

Consolidating Property insurance with other relevant coverages, such as General Liability and Cyber insurance, can often result in cost savings. Additionally, aggregating all your buildings under one policy will provide you with higher, blanket limits and save you time dealing with renewals. Underwriters understand economies of scale when combining other coverages and locations. Sometimes even meeting with underwriters can help determine best outcomes for complex situations.

Explore Alternative Risk Strategies

Often, through a risk assessment, an experienced insurance broker will find you are missing out on certain policies that can create cost saving dividends for you. Brokers who have the capacity and experience in forming captive insurance options and providing Tenant Legal Liability programs can create an income stream from your insurance program.


As the property insurance landscape in California undergoes significant changes, Apartment Association of Greater Los Angeles members must proactively adapt to secure their assets effectively. By staying informed, conducting thorough risk assessments, and exploring diverse coverage options, property owners and managers can navigate the current market with confidence.

The team at Hefferman Insurance Brokers comprehensive business insurance, personal insurance, employee benefits and financial services products to a wide range of businesses and individuals nationwide. For more information, contact Hefferman Insurance Brokers at (855) 700-1988 or  You may reach the author, Grant Otter, directly at (415) 808-1202.