Is it Time to Self-Insure? CA Homeowners Rate Increases

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
scifilover
Posts: 549
Joined: Sun Apr 14, 2013 12:56 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by scifilover »

geobrick wrote: Thu Mar 07, 2024 4:49 pm
dknightd wrote: Thu Mar 07, 2024 11:44 am
geobrick wrote: Tue Mar 05, 2024 12:51 am
Any thoughts?
I've pretty much decided I don't have enough to self insure. So I buy insurance.
Even when you have enough, having insurance can be the right thing to do. It's a personal risk/reward decision.
I want to keep my mortgage, so my original question isn't relevant to me anymore. If I didn't keep the mortgage, I'd seriously consider self-insuring because of how much the premium jumped in a single year (without the underlying value to me increasing at all).

It wouldn't have to be a forever decision. If things settle in the market, it could be worth buying again.

Earlier in this thread, there was a comment about how the pricing of insurance was finally going to be able to reflect market conditions. I think that's only partially true. Homeowner's insurance doesn't really fit the free-market system because it's mandatory for those with mortgages (which I assume applies to a majority of homeowners). If a product is mandatory, with little competition, there's not enough pricing pressure on the insurance companies. That's one of the reasons they're regulated. Now that they were able to convince the regulators by justifying the need for the increase, they're raising the premiums to a level they've determined provides them with the profits they want at the risk they're willing to accept.

But they also risk driving a few homeowners out of the market because of how they spread the 20% avg increase. Someone like me gets a 300% increase and others may only get a small increase. Maybe it's their plan to push out the homeowners in the higher risk areas. Eventually there could be new competition to fill that void. A company willing to take more risk or start out with lower profit margins but the hurdle for a start-up in homeowner's insurance is high. They'd need huge financial backing to get started.

I think what might have to happen eventually is the state will have to do something like they did with the CEA. The insurance companies only handle the administration of the system, and the state takes on the risk. My CEA premium has been in the range of $1,000 to 2,000 in the last 24 years and it was not a straight-line increase. In 2000 the premium was $1,538. In 2008 it was $1,034. In 2006 it was $2,094 and in 2024 it will be $1,434. The same rebuild cost pressures exist yet the price changes don't follow homeowner's premiums. The main difference is the risk of fire is on the rise and the risk of earthquakes I assume is unchanged. (and there's no profit consideration in the CEA that I'm aware of).
Most people think in a similar fashion that insurance companies do not bear risk for the CEA. This is untrue. From the most recent audited CEA 2022 statement:
"The CEA uses its available capital (net position) to leverage approximately $20 billion in claims-paying capacity at December 31, 2022. The CEA's claims-paying capacity is determined from the CEA's available capital, risk-
transfer coverage, debt, and post-event prospective participating insurance company assessments..."
In this statement, the CEA claimed to have $20B in claims paying capacity. Given that the CEA had only $8B in assets, the balance is from additional layers of financing, including several from assessments of insurance companies. Given that the companies would rather not have any EQ exposure, and that they were arm twisted by the state to participate in the then profitable CA HO insurance market, and that many have to purchase reinsurance to cover their CEA risk, adding CEA exposure to their total risk is just one more reason not to write more policies.

https://www.earthquakeauthority.com/sit ... ements.pdf
User avatar
Topic Author
geobrick
Posts: 121
Joined: Sun Jun 19, 2016 2:47 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by geobrick »

clutchied wrote: Thu Mar 07, 2024 11:37 am
geobrick wrote: Tue Mar 05, 2024 12:51 am Just got a notice from State Farm that my premium will be increasing by 300% (4x what is now). That seems excessive!

I can't help wondering what would have happened if back in 2000, I invested the monthly premiums in an S&P 500 index fund instead of paying for a homeowner's policy and used that account to cover any damage or replacement in that time? There was no way to know back then what the future held but in hindsight I would have been OK I think.

With the huge premium increase coming, I'm seriously considering self-insuring now or maybe there are some private insurance pools or community run insurance pools that exist to help spread the risk.

I've been in the same house for 24 years with only 2 minor claims in that time but nothing in the last 5 years. I'm pretty sure it's the CA fires they're concerned about but in the 24 years I've been here, there haven't been any homes in our area affected. I'm not saying fires aren't possible. There have been a few that have threatened the area but so far none that have come through and caused any home damage.

Any thoughts?
My parents got a 5x quote, renewed and then were dropped the following year. Feels like they just milked them one last time with no intention of actually keeping the business.
Ah ha! That's their plan!
A bit conspiratorial but I can see them coming up with a plan like that for the homes they don't want to risk insuring. If 5x wasn't enough, 4x won't be either.
User avatar
Topic Author
geobrick
Posts: 121
Joined: Sun Jun 19, 2016 2:47 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by geobrick »

mesaverde wrote: Thu Mar 07, 2024 6:24 pm Just tell them you have a fire extinguisher & smoke detectors & perhaps they'll only raise the premium by 200% 😀
I'll turn the house into a branch of the Fire Dept!
I wonder what the local firehouse pays for fire insurance. I would think insurers would shy away from covering my house if I rename it firehouse.
Last edited by geobrick on Fri Mar 08, 2024 2:33 pm, edited 1 time in total.
bltn
Posts: 1857
Joined: Mon Feb 20, 2017 8:32 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by bltn »

scifilover wrote: Tue Mar 05, 2024 9:31 am
toddthebod wrote: Tue Mar 05, 2024 8:24 am By definition most people are going to lose money buying insurance.

Do you have a mortgage?
When you buy a house you get the benefits that come with your ownership. However, with ownership comes risk. Most people don't understand the idea of risk. Because of this they feel than when they buy insurance and don't have a claim that they only have a loss. While this loss does exist, in truth, each year there is a calculable potential chance for a home to be damaged or destroyed by fire (or other peril). If your home is destroyed by fire and you don't have insurance your loss is total value of the structure and its contents. While the chance of this loss happening is small, it is a real. However, you cannot know in advance if your home will be one of the those that are damaged or destroyed. So from your standpoint your actual future loss each year is unknown. Insurance offers you a opportunity to exchange this unknown potential loss, for a known loss, the premium. So, when you pay the premium, the insurance company assumes for that year, your risk of loss. When you paid the premium you did receive something, albeit intangible; knowing that your unknown future loss would be covered.
Nice explanation of the concept of insurance.
Some are more predisposed to gamble than others. Whether it s Las Vegas , or individual equities.
I m not a gambler.
hbdad
Posts: 240
Joined: Fri Dec 13, 2019 2:29 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by hbdad »

My state farm home owners policy jumped 50% this year and 50% the year prior. I live in urban coastal area with no flood or fire risk. I was speaking with my agent recently and she told me they have a customer whose premium is going from 4k to 19k a year. I assume person lives in high fire risk area.
lessismore22
Posts: 294
Joined: Sun Jul 01, 2018 8:02 pm
Location: USA

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by lessismore22 »

hbdad wrote: Fri Mar 08, 2024 12:47 pm My state farm home owners policy jumped 50% this year and 50% the year prior. I live in urban coastal area with no flood or fire risk. I was speaking with my agent recently and she told me they have a customer whose premium is going from 4k to 19k a year. I assume person lives in high fire risk area.
We are in the Midwest, so also not in a wildfire or flooding area, but have seen double digit increases on homeowners insurance the past two years on both primary and vacation house. We have had a LOT of hail recently. Way more than I can ever remember. The storm-chasing roofers come out of the woodwork after each one.

For purposes of this thread, I've mentioned elsewhere I have an Uncle living in CA. Amica doubled his homeowners insurance, nobody else will take him. He is staying put and hoping for the best.
User avatar
Topic Author
geobrick
Posts: 121
Joined: Sun Jun 19, 2016 2:47 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by geobrick »

hbdad wrote: Fri Mar 08, 2024 12:47 pm My state farm home owners policy jumped 50% this year and 50% the year prior. I live in urban coastal area with no flood or fire risk. I was speaking with my agent recently and she told me they have a customer whose premium is going from 4k to 19k a year. I assume person lives in high fire risk area.
That's a 125% increase in 2 years for you (if I can still do math).
Your agent's story seems very credible given my circumstance.
User avatar
Topic Author
geobrick
Posts: 121
Joined: Sun Jun 19, 2016 2:47 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by geobrick »

Here's an update after walking through my options with State Farm.
I can get the premium from $16,309 to $11,300 by reducing the deductible from 0.5% to 2%, reducing personal property coverage from 75% to 25%, verifying the fire mitigations and proving I have an alarm system with active monitoring (they seemed to have dropped that info off the policy x years ago).

Going to a 3% deductible would reduce the premium by another $665 and going to 5%, would be another $500.

I plan to call a FAIR agent to see what other option might be out there.
DoubleComma
Posts: 2066
Joined: Sun Aug 23, 2020 2:23 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by DoubleComma »

geobrick wrote: Thu Mar 07, 2024 5:51 pm
fortunefavored wrote: Thu Mar 07, 2024 4:56 pm FAIR plus a wrapper policy for liability/contents may end up being cheaper than State Farm.
Thanks, I'll definitely check it out.
There is zero chance CA Fair Plan + DIC wrapper is less expensive.

Also, I have CA Fair Plan on my second home, they are a nightmare to work with and it’s getting worse as more people are forced to them. Ask any broker who is working with them and they will confirm. It’s become especially bad since November 2023 when the changed there computer system.
DoubleComma
Posts: 2066
Joined: Sun Aug 23, 2020 2:23 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by DoubleComma »

geobrick wrote: Fri Mar 08, 2024 3:02 pm Here's an update after walking through my options with State Farm.
I can get the premium from $16,309 to $11,300 by reducing the deductible from 0.5% to 2%, reducing personal property coverage from 75% to 25%, verifying the fire mitigations and proving I have an alarm system with active monitoring (they seemed to have dropped that info off the policy x years ago).

Going to a 3% deductible would reduce the premium by another $665 and going to 5%, would be another $500.

I plan to call a FAIR agent to see what other option might be out there.
One more thing, I believe you have to uninsurable by an admitted carrier for CA Fair Plan to even consider writing your policy. Fair Plan is actually a risk pool shared by all admitted carriers in California. It’s nothing more than a risk sharing model for these carriers and administered by Fair Plan.
fortunefavored
Posts: 1465
Joined: Tue Jun 02, 2015 8:18 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by fortunefavored »

DoubleComma wrote: Fri Mar 08, 2024 3:22 pm
geobrick wrote: Fri Mar 08, 2024 3:02 pm Here's an update after walking through my options with State Farm.
I can get the premium from $16,309 to $11,300 by reducing the deductible from 0.5% to 2%, reducing personal property coverage from 75% to 25%, verifying the fire mitigations and proving I have an alarm system with active monitoring (they seemed to have dropped that info off the policy x years ago).

Going to a 3% deductible would reduce the premium by another $665 and going to 5%, would be another $500.

I plan to call a FAIR agent to see what other option might be out there.
One more thing, I believe you have to uninsurable by an admitted carrier for CA Fair Plan to even consider writing your policy. Fair Plan is actually a risk pool shared by all admitted carriers in California. It’s nothing more than a risk sharing model for these carriers and administered by Fair Plan.
True, but they don't ask. A broker who has nothing to offer (which will be every broker at this point for a high risk fire area) will send you right off to FAIR.

Price-wise a couple years ago, it was slightly more expensive but half the coverage I eventually found through a captive agent. But they happily took my payment (I was worried about insurance lapse after non-renewal.)

I am curious how it plays out for our OP if the goal is minimum structure + liability wrapper.
User avatar
Topic Author
geobrick
Posts: 121
Joined: Sun Jun 19, 2016 2:47 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by geobrick »

DoubleComma wrote: Fri Mar 08, 2024 3:22 pm One more thing, I believe you have to uninsurable by an admitted carrier for CA Fair Plan to even consider writing your policy. Fair Plan is actually a risk pool shared by all admitted carriers in California. It’s nothing more than a risk sharing model for these carriers and administered by Fair Plan.
Based on that, are you saying I shouldn't bother calling an independent broker for a FAIR plan? If I'm not considered uninsurable by State Farm, shouldn't I call to possibly get a quote from another insurer that might consider me insurable?
Who was it that said, "Being insurable is better than being incurable."?
I think it was me, just now.
DoubleComma
Posts: 2066
Joined: Sun Aug 23, 2020 2:23 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by DoubleComma »

geobrick wrote: Fri Mar 08, 2024 4:14 pm
DoubleComma wrote: Fri Mar 08, 2024 3:22 pm One more thing, I believe you have to uninsurable by an admitted carrier for CA Fair Plan to even consider writing your policy. Fair Plan is actually a risk pool shared by all admitted carriers in California. It’s nothing more than a risk sharing model for these carriers and administered by Fair Plan.
Based on that, are you saying I shouldn't bother calling an independent broker for a FAIR plan? If I'm not considered uninsurable by State Farm, shouldn't I call to possibly get a quote from another insurer that might consider me insurable?
Who was it that said, "Being insurable is better than being incurable."?
I think it was me, just now.
You should call a broker, maybe two, for quotes from traditional companies.

If they don’t have a market, they may check fair plan. Nobody would elect to go with Fair Plan over any traditional carrier. Fair plan will be more expensive, they are a nightmare to work with and if you were to ever have a claim you are now navigating both fair plan and your DIC.
talzara
Posts: 4781
Joined: Thu Feb 12, 2009 6:40 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by talzara »

madbrain wrote: Thu Mar 07, 2024 5:58 am It's possible. I have a $10k deductible with Farmer's. Premium is still $4k.
I wish they allowed a percentage of replacement cost as deductible and not just a fixed amount. Say 1-5%. That would be up to $100k deductible on a $2M house.
Farmers offers deductibles of up to 5%.

If your policy does not offer a 5% deductible, it is probably a grandfathered policy, a former MetLife policy, or a policy from one of the subsidiaries. You can call and ask for a policy rewrite, but a Farmers agent in California may be unwilling to do it because of the quota.

Grandfathered Farmers policies are usually worth keeping because the newer policies have more exclusions.
Alan S. wrote: Thu Mar 07, 2024 11:27 am Agree. A deductible of up to 5% of the Cov A amount would be helpful. For HC areas, this would basically eliminate claims other than fire claims.
Fire, liability, and catastrophe. The liability premium doesn't change because the deductible doesn't apply.

The other by-peril premiums usually drop to below $10. The theft premium often drops below $1. Who's going to steal 5% of the value of your house?
talzara
Posts: 4781
Joined: Thu Feb 12, 2009 6:40 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by talzara »

Amanda999 wrote: Thu Mar 07, 2024 5:34 pm I'm be very interested to hear if you can buy an umbrella policy without a homeowners policy - that covers liability related to the home.
You can buy a personal liability policy.

For example, State Farm sells a Premises Personal Liability policy in California.

If your insurer doesn't offer a personal liability policy, it may allow you to use another company's policy. If it doesn't, you can switch to a company that does. You can also switch to a standalone umbrella insurer.
User avatar
Topic Author
geobrick
Posts: 121
Joined: Sun Jun 19, 2016 2:47 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by geobrick »

DoubleComma wrote: Fri Mar 08, 2024 7:45 pm You should call a broker, maybe two, for quotes from traditional companies.

If they don’t have a market, they may check fair plan. Nobody would elect to go with Fair Plan over any traditional carrier. Fair plan will be more expensive, they are a nightmare to work with and if you were to ever have a claim you are now navigating both fair plan and your DIC.
I contacted a local independent broker who ran the numbers for a FAIR policy plus a wrapper for liability and said I'd be better off sticking with State Farm for now. The Premium for just fire coverage of the FAIR policy would cost about $10,000 but I'd need to add a liability wrapper on top of that for about $3,000. There are other things the State Farm policy covers as well for the $11,000 premium I mentioned earlier in the thread so I will likely stay with them for this coming year. It's nice to know the FAIR plan is out there for people who need it (or for me in the future).
madbrain
Posts: 7177
Joined: Thu Jun 09, 2011 5:06 pm
Location: San Jose, California

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by madbrain »

talzara wrote: Fri Mar 08, 2024 8:50 pm
madbrain wrote: Thu Mar 07, 2024 5:58 am It's possible. I have a $10k deductible with Farmer's. Premium is still $4k.
I wish they allowed a percentage of replacement cost as deductible and not just a fixed amount. Say 1-5%. That would be up to $100k deductible on a $2M house.
Farmers offers deductibles of up to 5%.

If your policy does not offer a 5% deductible, it is probably a grandfathered policy, a former MetLife policy, or a policy from one of the subsidiaries. You can call and ask for a policy rewrite, but a Farmers agent in California may be unwilling to do it because of the quota.

Grandfathered Farmers policies are usually worth keeping because the newer policies have more exclusions.
Alan S. wrote: Thu Mar 07, 2024 11:27 am Agree. A deductible of up to 5% of the Cov A amount would be helpful. For HC areas, this would basically eliminate claims other than fire claims.
Fire, liability, and catastrophe. The liability premium doesn't change because the deductible doesn't apply.

The other by-peril premiums usually drop to below $10. The theft premium often drops below $1. Who's going to steal 5% of the value of your house?
Thanks. My Farmer's policy was written about 2 years ago. I don't think it's a grandfathered policy. I will talk to my agent.

As to 5% value theft, it really depends on what you have. My piano has an MSRP of $191k new, which is about 10% of the value of the home.
Of course, it is not new anymore, and I didn't pay anywhere near that price for it. It still might now be worth more than what I paid for it 12 years ago.
It is pretty hard to steal given that it weighs about 1200 lbs.
talzara
Posts: 4781
Joined: Thu Feb 12, 2009 6:40 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by talzara »

madbrain wrote: Fri Mar 08, 2024 9:30 pm As to 5% value theft, it really depends on what you have. My piano has an MSRP of $191k new, which is about 10% of the value of the home.
Of course, it is not new anymore, and I didn't pay anywhere near that price for it. It still might now be worth more than what I paid for it 12 years ago.
It is pretty hard to steal given that it weighs about 1200 lbs.
The theft premium never gets reduced to zero. The insurance company always charges you something for the risk, even if it's less than a dollar.
fortunefavored
Posts: 1465
Joined: Tue Jun 02, 2015 8:18 pm

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by fortunefavored »

geobrick wrote: Fri Mar 08, 2024 9:16 pm
DoubleComma wrote: Fri Mar 08, 2024 7:45 pm You should call a broker, maybe two, for quotes from traditional companies.

If they don’t have a market, they may check fair plan. Nobody would elect to go with Fair Plan over any traditional carrier. Fair plan will be more expensive, they are a nightmare to work with and if you were to ever have a claim you are now navigating both fair plan and your DIC.
I contacted a local independent broker who ran the numbers for a FAIR policy plus a wrapper for liability and said I'd be better off sticking with State Farm for now. The Premium for just fire coverage of the FAIR policy would cost about $10,000 but I'd need to add a liability wrapper on top of that for about $3,000. There are other things the State Farm policy covers as well for the $11,000 premium I mentioned earlier in the thread so I will likely stay with them for this coming year. It's nice to know the FAIR plan is out there for people who need it (or for me in the future).
Thanks for checking this and posting the numbers. I was thinking if FAIR was $5000+$3000, then that could work out.. but obviously that is not the case.
madbrain
Posts: 7177
Joined: Thu Jun 09, 2011 5:06 pm
Location: San Jose, California

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by madbrain »

State Farm is cancelling 72,000 CA policies.

https://www.bloomberg.com/news/articles ... dfire-risk

And they are not writing any new homeowner's in CA.

I'm still with Farmer's but shopping my insurance online right now. I'm not able to obtain any quote. Automatic deny.
There is a FAIR plan calculator at https://cfpnet.com/premium-calculator . It only seems to work in a mobile browser.
The premium is nearly the same as that of my current Farmer's policy. But of course it's lacking liability & water damage.

How can you get quotes on the "Differences in condition" policies ?
madbrain
Posts: 7177
Joined: Thu Jun 09, 2011 5:06 pm
Location: San Jose, California

Re: Is it Time to Self-Insure? CA Homeowners Rate Increases

Post by madbrain »

I found out about a fairly new insurer called Delos. They specialized in wildfire insurance risk, and are based in California.
https://www.getdelos.com/
You can't buy a policy directly through them. You must buy it through a broker. I found out about them through Hippo.
Got a quote for my home of $4326, which is pretty close to my Farmer's policy, but comes with a $30k wildfire deductible.
I talked to my Farmer's agent, and they said Farmer's started non-renewals in risky wildfire areas at the end of last year, before my renewal happened in mid-December. She thought I would not be non-renewed.
I was able to increase my homeowner's deductible to 5% of the $1.5M dwelling coverage, which is $75k. I also have 50% extended replacement cost, but the deductible does not apply to that. I'm not entirely confident that $2.25M would cover demolition and construction costs, but we probably would not rebuild if the house burnt anyway.
This change caused me homeowner's premium to drop from $4052 to $2349.
I slightly increased the deductible on my auto to $1500, and annualized price is now $3464 instead of $3608.
I just found out that umbrella coverage at Farmer's is now billed every 6 months instead of annually. I was wondering why the cost of the policy had dropped :-( Did not see the renewal date.
Increased the umbrella from $2M to $3M, and cost went from $988/year to $1140.
Altogether, total annual insurance costs went from $8648/year to $6953. That is still a very significant percentage of total spending.
Post Reply