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The reinsurance market is very interesting in that there’s only a handful of them out there. It’s a global market. A lot of it is domiciled over in Europe and London over there. And so what they’ll do is back these insurance companies.

So, they’ll back Nationwide, State Farm, and Allstate after they’ve hit this threshold. And what they’ve said is, Hey, we know that there’s a great potential for these catastrophic losses, so we’re going to jack up our reinsurance costs, okay? That kind of goes downhill to the insurance company that we deal with.

Going back to Prop 103. Prop 103, in the legislation, specifically has language in there that says the insurance company, so State Farm, Allstate, AAA, whomever you want to name, even though they may be incurring the higher reinsurance cost, can’t pass that along to the consumer. So they have to eat that. So that, too, has been going on in the background, and that’s also pushed them out of the market to step back.

That’s interesting. So it’s politics, too.

It’s politics. And these other factors that the end consumer is not going to be aware of at all, are kind of playing together to increase the overall cost.

Tune in for Part 12 of the State of Fire Insurance in Tuolumne County, where Justin and Ryan discuss the Accuracy of Risk Assessment by Insurance Companies!

We’d be happy to review your insurance coverage options with you! Give us a call at (209) 532-5102 or visit https://caldwell-insurance.com.

Wow.

So, it sounds like the solution is to allow insurance companies to increase their rates more because that would still be less than what people are faced with on the Fair Plan. But they’re only able to increase by 6.9% every year. What if they just did that every year? 6.9% in four years, and you’d have roughly what you’d need.

One of the interesting things was, for many years, the insurance companies weren’t taking rate and rates were kind of flat. And we can probably point our fingers at some insurance companies or say, gosh, part of the blame is to lie on them because they weren’t taking enough small increment rates over the years. Then we have all this inflationary pressure, and then in Tuolumne County, we have the brush fire that’s impacting us. And then you have this issue of rate that was going on in the background.

So, what has happened is a lot of these companies have filed for these larger rates, and the insurance commissioner, it’s a political position, has kind of said, no, we don’t think you need that rate to try to protect the consumer. So then the insurance companies are saying, okay, well, if you don’t want to give me my 20-30%, we’re going to step out of the marketplace. And then, once again, it’s created everyone having to go to this California Fair Plan, which is not a good alternative, as we all know.

Now, there’s a piece in this background that I’m not sure if you know much information about or have heard, and there’s usually not much talk about it, but there’s this reinsurance market out there.

I was going to ask you about that. Can you tell me what is the reinsurance market?

Sure.

So, the reinsurance market plays a big impact on rates and what we see on the consumer side when it comes to premiums. An insurance company on a catastrophic loss will insure or cover up to a certain amount. And I’m just going to use an arbitrary number. Let’s say they cover up to the first $50 million of losses. So, in the event of a large catastrophic fire where they’re paying out hundreds of millions or getting into the billions, that insurance company is only going to take on the first 50 million. Then, beyond that, it’s being taken care of by the reinsurance market.

The reinsurance market is very interesting in that there’s only a handful of them out there. It’s a global market. A lot of it is domiciled over in Europe and London over there. And so what they’ll do is back these insurance companies.

So, they’ll back Nationwide, State Farm, and Allstate after they’ve hit this threshold. And so what they’ve said is, Hey, we know that there’s a great potential for these catastrophic losses, so we’re going to jack up our reinsurance costs, okay?

That kind of goes downhill to the insurance company that we deal with.

Tune in for Part 11 of the State of Fire Insurance in Tuolumne County, where Justin and Ryan discuss the Reinsurance Market + Politics and Higher Reinsurance Costs.

We’d be happy to review your insurance coverage options with you! Give us a call at (209) 532-5102 or visit https://caldwell-insurance.com.

How does California, and the fact that they’re pulling out of California …. where are they going? How does California compare to other states? Because we’re not the only state that has catastrophic wildfires. We’re not Florida. They have flooding, they have hurricanes. The South has hurricanes. You’ve got tornadoes in the Midwest. We’re not the only state with these types of issues.

Right.

So why does it feel like the insurance industry is so different in California?

One of the things that goes on behind the scenes with insurance companies is that we have the California Department of Insurance; we have the Commissioner, which is an elected position. And, part of that commissioner’s job is to look at rate and to approve whether an insurance company or not should be increasing rate.

Prop 103, which some of us are familiar with, was passed several years back. One of the components of the Prop 103 legislation was that any time an insurance company wants to raise their rates beyond 6.9%, so if they want to increase their rate 7% or more, they have to go through an extensive process to basically prove or show the California Department of Insurance why they need rate.

It’s interesting because it’s talking to the insurance companies and going, well, if we’re having to go to the California Fair Plan, we’re seeing rates go up 50-100% …. the worst case is 200 or 300% …. Why can’t these insurance companies, on the private side, be able to stay in the market and increase their rates 20, 30%? Because at the end of the day, I think anyone would much rather pay 20 or 30% than 200% or 100%

Wow. So, it sounds like the solution is to allow insurance companies to increase their rates more because that would still be less than what people are faced with on the Fair Plan. But they’re only able to increase by 6.9% every year. What if they just did that every year? 6.9% in four years, you’d have roughly what you’d need.

Tune in for Part 10 of the State of Fire Insurance in Tuolumne County, where Justin and Ryan discuss the Impact of Rate Regulation on Insurance Companies + the Reinsurance Market and its Impact on Rates

We’d be happy to review your insurance coverage options with you! Give us a call at (209) 532-5102 or visit https://caldwell-insurance.com.

And once again, we talked earlier about an insurance company. They need to make a profit, right? At the end of the day, it’s not a non-profit business. So, for every dollar that they’re paying out in claims, they need to make sure that they’re taking a dollar in on the premium side. And in this article, it goes in depth here, and they were talking about the loss ratio, which is, once again, the money that’s coming in versus the money that’s going out in claims.

And they shared some interesting figures here. They said that in 2022, so last year, their loss ratio, they were at 108.8%. So we round up to 109%. So, for every dollar that they were taking in, they were paying out one dollar and nine cents.

Wow.

And then, in one of their other markets where they operate, they were at a loss ratio of 105.3%. So what these companies are doing, from their perspective, is stepping out of the marketplace and going until we can figure out where the dust is going to settle and how we can charge rates.

It’s almost created this perfect storm or this vacuum in the state of California because we all know that when the private sector kind of steps out of things and there’s no competition in the private sector, what are we left with?

We’re left with this insurance pool, which we referred to as the California Fair Plan, which everyone says is not fair, and they’re absolutely accurate.

How does California, and the fact that they’re pulling out of California… where are they going? How does California compare to other states? Because we’re not the only state that has catastrophic wildfires. We’re not in Florida. They have flooding; they have hurricanes. The South has hurricanes. You’ve got tornadoes in the Midwest. We’re not the only state with these types of issues.

Tune in for Part 9 of the State of Fire Insurance in Tuolumne County, where Justin and Ryan discuss the Insurance Industry in California Compared to Other States!

We’d be happy to review your insurance coverage options with you! Give us a call at (209) 532-5102 or visit https://caldwell-insurance.com.

Well, and it’s funny, it seems like we’re in California, right? Every ten years, there’s some kind of disaster that becomes THE disaster. We had earthquakes in the 90s, like you said. We’ve had riots in the past. We had flooding as a major issue in California. We’ve got it all.

And it seems like that has become the big focus in the insurance industry. And clearly, fire is the big focus right now in the state. Are we just on a cyclical wave here? Is it going to improve? What do you see happening in the future?

I mean, do we need to wait for some other terrible disaster to affect another part of the state so that the focus is less on forested areas, or what does the future hold?

Tuolumne County, clearly, we have an insurance crisis going on. The market hasn’t been getting any better. It’s only been getting worse. We step back, and we look at the state … the states being affected as well. On almost a weekly basis now … if not a daily basis … sometimes it seems like there’s another company that’s pulling out not of just out of Tuolumne County, but out of the entire state of California.

The most recent one, and I had printed out an article here, was Kemper Insurance. Not a huge name, but a fairly big player in the homeowner and auto insurance. And the title of this article here was “Insurance Failing: The Most Disruptive Personal Lines Environment that the CEO has ever seen from Kemper Insurance.

And once again, we talked earlier about an insurance company. They need to make a profit, right? At the end of the day, it’s not a non-profit business. So for every dollar that they’re paying out in claims, they need to make sure that they’re taking a dollar in on the premium side. And in this article, it goes in depth here, and they were talking about the loss ratio, which is, once again, the money that’s coming in versus the money that’s going out in claims.

We’d be happy to review your insurance coverage options with you! Give us a call at (209) 532-5102 or visit https://caldwell-insurance.com.

Destructive events are high-risk. We’re probably right in 70% to 80% of our policies today with a California Fair Plan, where five years ago it was less than 2% .. less than 1%?

That’s amazing. Can you explain why it is it so much more expensive? Because like you said, there’s this perception that it’s a state-run insurance plan, but obviously, it’s not. It’s run by an assemblage of private insurers. But generally, there’s this perception that if the state has its stamp on it, that it would be subsidized, it should be cheaper, but it’s absolutely not cheaper.

What is driving that? Is it just the fact that, well, you have to be on the Fair Plan? So obviously, you’re high-risk, so we’re going to have your rates higher. How does that work?

Great questions in any insurance company, whether it’s health insurance, life insurance, we’re specifically today talking about property insurance, right? The best portfolio would be to spread your risk equally among maybe some difficult risks, some high exposed risks, but also some great ones. Well, when you look at how the California Far Plan is being utilized, well, now what’s happened is we’ve taken all these high-risk homes in these high-brush areas and put them into one pool.

So, in the event of a catastrophic loss where hundreds or thousands of homes are being lost, they need to make sure that they have the reserves in that California Fair plan to pay out those policyholders. And the interesting thing is with a standard insurance company, a lot of times they’re mutual companies, or they’re operated by stockholders. So profits are getting distributed, right. To stockholders. Well, in the California Fair Plan, there are no stockholders. It’s not a mutual company. It’s a true risk pool. So, any of the losses or gains in that stay in that California Fair Plan.

Okay, so it has to be completely self-sustained and pay for itself. Correct.

And that’s what’s know, we’re seeing. These rates are constantly going up, and they’re one of the most expensive plans out there, of yeah. Because they need to make sure that in their reserves, should a catastrophic fire occur, they can pay those out. And it doesn’t help when you’re only taking on high risk. Right.

We’d be happy to review your insurance coverage options with you! Give us a call at (209) 532-5102 or visit https://caldwell-insurance.com

Sure. So, the California Fair Plan was developed, or it came about in the late 60s after the riots in LA. And, the California Fair Plan is required and mandated by the State of California. A misconception often is that it’s a state-run plan. It’s actually not a state-run plan. It’s once again a state mandate and required.
But it’s actually a true insurance pool that is made up of all the consumers in California that need to utilize that and on any preferred or standard insurance company.

So, if you have a state farm policy, let’s say there’s a small percentage of that state farm policy that you pay a tax on, that actually goes into the California State Plan … California Fair plan … to help run and operate that. It’s a very small percentage. So, it truly is a pool that a lot of consumers are having to go to. Now, it was designed, as I mentioned, in the late 60s after the riots. And it was utilized for those properties that were really hard to place and either had a very bad loss history, or they weren’t upkept, and no insurance company would want to write them because the risk is too high.

That’s kind of interesting the history on that, because I honestly didn’t know that. So it’s something equivalent to there were these terrible riots, homes burned, homes were damaged, there wasn’t a lot of incentive or desire among insurance companies to go back into those neighborhoods. That’s kind of analogous to what’s happening here. Obviously very different situation than riots. But I guess it’s just an aversion to areas where there’s mass destructive events. That’s kind of what it is.

We’d be happy to review your insurance coverage options with you! Give us a call at (209) 532-5102 or visit https://caldwell-insurance.com.

So you kind of see it from both sides.

We do.

The insurance side, and then from the property owner side, because you’re the one making that connection. How are you finding that the availability of insurance is impacting the way people make choices when they want to purchase a home?

Right. Today the market is very difficult, and as you mentioned, we act as a broker or an agent. So we represent some insurance companies or a handful of insurance companies, which many of them are shrinking because they’re pulling out of the entire state as of recent. And then at the same time, we work with the consumer and the homeowners. We also do a lot of commercial building insurance. And our job is to go to the marketplace, find the best level of coverage for the needs of our customers, and then match them with an insurance company.

And when it comes down to the marketplace, I can say that two years ago we probably had close to anywhere from five to ten because the market is constantly fluctuating. But five to ten companies to go to on the homeowner side, and today we’re down to two. And that doesn’t include the California Fair Plan. The California Fair plan would be the third one. That’s obviously the last option we want.

What are the two that are still operating?

The two that we’re still currently riding with are Safeco and Travelers. They’re not writing in high-brush areas. So what we’re having to do is if you are in a brush area, which is most of Tuolumne County currently.

I was going to say, What area in Tuolumne County isn’t a high-brush area?

Right. We’re turning to them to write the companion policy, which is referred to as a difference in conditions policy. And that kind of goes alongside the California Fair plan.

We’d be happy to review your insurance coverage options with you! Give us a call at (209) 532-5102 or visit https://caldwell-insurance.com.

I don’t see that the risk is any higher than it was during the rim fire. And if anything, we’ve taken many steps as a community to make that risk much less. So why then do the insurance rates continue to increase?

Sure. So I think going back to once again, and we’re kind of using like the rim fire, right, as just a point in time. Prior to that, once again, we were paying the exact same rate up here. If you had a fire hydrant within a thousand feet, lived within 5 miles of a fire station as you did in the city of and I think we can both agree that a house in Twain Harte that’s surrounded by trees and brush right, is a different risk than that in the middle of Modesto.

And so these fires started occurring in a more frequently, and burning much higher levels of acreage after the rim fire. And so the insurance company said, oh, wait a second here. If this is potentially a new trend where we’re going to see these larger fires that are burning hundreds of thousands of acres, we need to take a look at our risk and our portfolio and where we’re insured because, at the end of the day, they got to pay out. Right. Insurance is a contract.

So what had happened there is certain companies started pulling out the market. It was very few of them, but certain of them kind of were on the front end of this.

And then those preceding the we look at like the Tubbs fire in Napa and Sonoma. And when you get a wind-driven fire that’s crossing the freeway, six lanes of freeway, and it’s interesting because I took a close eye on that fire.

And when you have a fire that’s able to cross that much freeway and then burn down a concrete tilt-up, because what happens is with these fires, they’re wind-driven with the Embers. Right. So it just takes one or two Embers getting inside. So when you have a concrete tilt-up getting burned from the inside out, it changed the game in the insurance industry. And them going, oh my goodness.

Those handful of carriers that pulled out prior to these large fires, their decision was confirmed.

What’s your role? So you don’t actually sell the insurance, you connect people. If I’m buying a home in the community, you connect me with an insurance provider. That’s kind of the role.

We’d be happy to review your insurance coverage options with you! Give us a call at (209) 532-5102 or visit https://caldwell-insurance.com.

What is an actuarial? Because I have an idea of what I think it is, but you tell me, what is an actuarial?

Yeah. To keep it very simple, for every dollar that an insurance company takes in, right? They want to make sure that they’re not paying out more than that dollar.

So, an insurance company is going to look at the risk. They’re going to look at historical data and the amount of property that they’re insuring. It’s oftentimes referred to as like, the total insured value. So in the event of a catastrophic loss, we’re going to pay out X number of dollars.

So they take that total risk that they have on their portfolio and need to make sure they’re taking in enough premium should a catastrophic fire or a catastrophic event happen.

And so what has happened is ten years ago, when we weren’t having these large historical fires happen so often or so big, insurance companies were raiding homes, that in an event where you had a house fire and it maybe spread to the neighborhood, and the insurance company would be paying out on a large event, maybe five or six homes got lost. Right? In a neighborhood as opposed to recently with these large historical fires, they’re paying out for hundreds or if not thousands of homes that are being destroyed.

So that number is way different today than it was before. And that’s really changed the risk and the exposure in kind of driving the rate.

Okay? And that’s an interesting issue because I’ll play devil’s advocate here, okay? The way it’s perceived with a lot of property owners in Tuolumne County that have been denied insurance or their insurance rates are increasing, or they are, I’ll say, forced to use the Fair plan because it’s very expensive.

What it feels like is that there’s this perception that Tuolumne County is a higher risk and that fires are more likely to happen here than somewhere else. And there have been other fires throughout the state.

And so if I own an insurance company, this is my opportunity to jack those rates up and kind of squeeze these communities and get more money out of them because there’s this perception that there’s more risk and understanding whether or not that risk is truly at the level that the insurance industry seems to think it is. I think that’s where a lot of the conflict is.

We’d be happy to review your insurance coverage options with you! Give us a call at (209) 532-5102 or visit https://caldwell-insurance.com.