Every landlord, property owner, and investor in California has been feeling the effects of the ongoing insurance crisis. The consequences for investors have been further financial strains due to the increased operating costs that have affected profitability., The only way to recoup losses has been to cut corners in other ways or to increase rents (if allowed). TAKING A LOOK AT CALIFORNIA’S INSURANCE PROBLEMS
While insurance used to be more of a tertiary concern, it’s now firmly a secondary, if not primary, consideration when budgeting for operational costs. The California crisis was always projected to get worse before getting better – so is there an end to this madness in sight? Well, it depends on how good your vision is. After the horrible wildfires of early 2025, State Farm stated that their reserves already are at risk. Their recently released statement said they have $1.4B in reserves and they’ve already paid out $1B this year. Because of this, they have filed for emergency relief with the California Department of Insurance for approval to implement immediate rate
increases, averaging 22%, to try to supplement their reserves. Due to their previous underpricing in the state (over the past approximate decade, for every $1.00 they’ve charged, they’ve paid $1.26 out), pricing increases going forward are inevitable. On the plus side, California has started rolling out new regulations to incentivize more insurers to remain in California by allowing carriers to increase premiums in higher risk areas. This move should hopefully bring some relief later this year. In January of 2025, the California State Commissioner implemented a mandatory one- year moratorium on insurance non- renewals in the L.A. area. At least for now, that move will keep some properties from having to go to an inherently pricier option.
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