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Rising Insurance Rates and the California Fair Plan

If you drive a car, own a home or a business in California, you’ve more than likely noticed substantial premium increases, and in some cases, your insurance company has instituted a moratorium (pause) on new business, or even worse, they’ve left the state entirely.  I have been in the insurance industry for thirty-seven years, over 33 years as an agency owner, and I haven’t experienced anything like this in the insurance industry, nor has anyone else in California.

Why are we in this predicament?  There are a number of factors that come into play, and in my opinion, one doesn’t necessarily weigh more than another. Inflation, Covid, Wild-Fires, increased costs of reinsurance, labor, building materials, auto parts, etc… and throw in Proposition 103 factors, and you have the perfect storm.   

I don’t profess to have all the answers, but here are a few recommendations I have, as we continue to deal with our current insurance climate in California:

1. Review your insurance policies with your current agent/broker.  This should be done at least every other year to confirm you’re receiving all your discounts and that there are no gaps in coverage.

2. If you’re currently with a strong insurance company and your local agent is taking good care of you, now is not the time to change insurance companies unless you’re saving a substantial amount of premium and you’re going with another legitimate, strong company.  In our current insurance climate, many companies have policies grandfathered in, and if you leave, will possibly deny your reinstatement request.  

3. Do Not let your policies lapse.  Again, insurance companies in California are underwriting their book of business with a very tight belt.  In many cases, if a policy holder is habitually late on their monthly billing payments, they’ll be required to make full premium payments, and in some cases will not have their reinstatement approved. 

4. When you do shop insurance companies, make sure that you’re comparing coverages and deductibles.  In addition, know how well a company pays their customers in the event of a claim.  Do they properly indemnify their customers in a timely manner?

5. Cheaper isn’t necessarily Better.  The bottom line is that everyone wants to save money, I understand that.  With that said, the reason we have insurance is to protect our assets.  If a company or agency broker cuts corners with inadequate coverages to lower premiums and you have a loss in the future, that person did you a huge disservice. In some cases, you could be left paying the additional costs out of your own pocket. 

The California Fair Plan…. Or CFP was established to meet the needs of California homeowners unable to find insurance in the traditional marketplace.  The CFP is a syndicated fire insurance pool comprised of all insurers licensed to conduct property/casualty business in California.  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.  It’s meant to be a temporary safety net until a traditional carrier becomes available.

It’s important to note that the CFP is a named peril policy, which provides coverage only for damage caused by Fire & Lightning, Internal Explosion, and Smoke.  Additional coverages can be purchased via a wrap around policy or Difference in Conditions.   

It’s extremely important to have an agent that’s looking out for your best interests and explains the endorsements that you may or may not need on your policy to properly protect your home and belongings, especially since the Fair Plan is becoming more relevant in our valley, and not just in our high fire-line areas.

Written by Craig Davis

Craig Davis is an agent for Farmers Insurance and the owner of Craig Davis Family Insurance located at 27625 Jefferson, Suite 100, in Temecula. He may be reached at (951) 699-1776.

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