For years, homeowners’ insurance was just there. It was a safety net, ready to catch the policyholder when disaster struck.
Now that net is fraying and homeowners are having difficulty understanding why coverage is becoming so expensive or, in some areas, nearly impossible to obtain.
Homeowners across the country, especially in wildfire-prone states, are seeing their premiums skyrocket, their policies cancelled or, in some cases, it’s challenging to find adequate affordable coverage. Insurers are feeling the pressure, too. For years, they relied on traditional risk models to calculate premiums, issue policies, and assume predictable loss patterns. The landscape has changed. Rising claims, extreme weather events, and economic pressures are pushing the industry to a breaking point.
If we look at the years between 2013 and 2022, it’s clear that it’s becoming harder for insurers to stay profitable. During that period, insurers have had a combined ratio of 108, which means they spent 108% of their premiums. They’re paying out more than they’re taking in. That’s a dangerous thing.
The insurance industry has been basically going through Einstein’s theory of insanity, doing the same things over and over again and expecting a different result. And with all the changes from 2013 to now, when carriers say they have a 108% loss ratio, I would estimate that’s on the low side. Carriers are losing money.
When insurance carriers lose money, they pull out. Right now, they’re doing historic cancellations throughout California. We launched the WOWS program to combat this. What’s really scary is it’s not just happening in California. The Western United States is being affected by this. Unless we make changes — many of which are simple, common-sense adjustments for the industry — things won’t be sustainable. Rates will keep rising, and it will quickly become uncontrollable. And what’s happening in the housing market as insurance becomes either too expensive or difficult to obtain?
We’re watching deals get destroyed or fall out of escrow because of incredible increases in rates. We’ve seen carriers double, triple, quadruple. We’re seeing 100% and 200% rate increases for the ones that are staying in. It’s only because it’s based on area and risk. So it puts a lot of pressure on the real estate market.
I’ve been a speaker for the California Association of Realtors on insurance and fire zones. I speak throughout the different realtor associations on the WOWS program. One of the unique features is that it’s the first policy that’s fully transferable from sellers to buyers. When the policy that the seller has can be transferred to a buyer, that helps to stabilize the market.
The spread of risk is as important or more important than the actual fire scores themselves. One of the big negatives that’s happened in California is companies are oversaturated in markets. They have way too many policies in one area, and that’s causing these major losses.
One of the biggest honors we’ve received comes from multiple reinsurance companies, from Munich to others. We’re now wholesaling products and bringing things back in to gain additional support.
We continue to work with not just our own Wows Insurance program, but we’re also bringing other insurance companies in to help support the entire Western United States that’s dealing with fires. I’m referring to California, Nevada, Arizona, Oregon, Washington, and Utah.
Things just have to change and we’re helping. I like to believe that we are leading the way.
When I work with the Department of Insurance in multiple states, every department is in the same category. They’re all hands on deck, which is a great sign.
Insurance companies are putting billions, and I use that word with a B… billions of dollars at risk. So, wouldn’t it make sense from a regulatory standpoint to spread it out? If a company is going to have $5 billion or $10 billion of risk in California, do you want it all primarily in one area, or do you want to make sure that the spread of risk happens where no more than one or two homes are possible in a fire? This is what affects insurance rates.
There’s a rebuild cost for a kitchen fire, so if a kitchen fire burns the house down, it’s one home. There’s a cost. The cost of a shock loss or a catastrophe could be as high as 30 to 50% higher because of supply and demand.
What are things that people in other states can be thinking of, whether it be mitigation or getting insurance?
I’m very lucky to work with a lot of the different departments of insurance. I like to use Nevada as an example. Nevada and their Department of Insurance are not being reactive. They’re being proactive and they’re looking to make changes. That’s very inviting for us to be able to come in there and work with them.
Consumers need to realize that mitigation is coming to the doorstep. The problems in California, those problems are already in Park City, Utah & Aspen, Colorado & Bend, and Oregon. These areas are all having problems with insurance. So, the mitigation’s going to be a key thing.
Consumers need to be involved in mitigating risk.
If you have open, exposed eaves, they need to be closed. Lean, Clean and Green is a program that Cal Fire started. That should be used everywhere in the Western United States.
As we continue to develop the WOWS program and its core principles, we will shift the direction of the insurance industry in the right way, focusing primarily on risk distribution and transferability. We’re proposing a range of initiatives as part of our program that we believe will be adopted by multiple insurance companies. These changes will help make insurance more affordable for consumers while ensuring profitability for the companies.
We need to change. We’ve got to be creative and inventive.
Einstein’s theory of insanity doesn’t work.
Learn more at https://wowsinsurance.com/.
