Why Insurance Costs Are Increasing Significantly in California | Chris Hebard

A year ago, somebody was paying $1,800 for a million dollar house for their homeowner's insurance, average. Per year. Per year. And now they're going to be paying anywhere from $10,000 to $15,000 a year. A lot of insurance companies are leaving. In the 75 years that our insurance agency has been in business, we've never seen anything like this. My guest today is Kris Hebbart. She's the president of Hebbart Insurance Solutions. She's here to discuss why insurance companies are pausing their coverage in California and its impacts on us Californians. This is the very first time in the history of our agency that we can't always find insurance for people. Are you worried that you guys could survive in the long run? This is something that can crash our economy. If the insurance companies say no more, we're not going to write any insurance in California anymore, it will stop everything here. I'm Siamak Karami. Welcome to California Insider. Kris, it's great to have you on. Welcome. Oh, great. Thank you. We want to talk to you about insurance. In our state right now, there seems to be a crisis from what it seems like with insurance. Home, auto, and insurance companies are leaving, and some people's rates are going up by multiple folds. Can you tell us what's going on? Sure. Well, it's a very complicated problem. In the 75 years that our insurance agency has been in business, we've never seen anything like this. It's spurred by the recent years of massive wildfires. The factors affecting that are huge, and I'm sure that you've talked about it a lot. The forest mismanagement, and utility negligence, and droughts, and trees are dying, and we have a lot of underbrush, and then inflation, and supply chain issues, labor shortages. All of those things have caused insurance companies to pay a lot more for a loss than they ever have in the past. In order to sustain a business, you can't afford to pay 130 percent of what you take in for very long. You're going to end up having to raise your prices, raise your rates. In California, we have a very regulated insurance environment. In 1988, we voted a proposition. It's called Proposition 103. It dictates exactly how much the insurance companies can charge, how much they can make. They can make 15 percent profit. That's all they can do in California on certain lines of insurance business, auto, home. They can't use anything other than a driving record for auto. It's very, very regulated. The process to get a rate increase is tough. It also made the insurance commissioner an elected position, which is nothing that we have ever had before. Whenever you start electing people, they become politicians instead of technicians. You're run more by what the masses want you to do than what might be exactly right for the economy. Our insurance commissioner has decided to suppress rates and not allow insurance companies to increase their premiums so that they can remain profitable. That's what he's done. Insurance companies are losing money. We've actually lost three insurance companies over the last couple of years to insolvency. Over the recent several months, we've lost State Farm and Allstate nationwide. There's a whole host of others that some people might not be familiar with. Those are the big ones. State Farm is the largest insurer of home and auto in the nation. Now, they're just stopping across the whole state. They're not writing insurance anymore. Every day, we just got an email from another insurance company that effective July 1st, they'll no longer take any more business. These are smaller companies, but we get these emails every single day. We're an independent agent, so we represent a plethora of insurance companies, but they're just dropping, just like dominoes, just going down because they can't afford to take on any more of the risk. They can't become oversaturated in any one area, or they'll go out of business. They won't have enough money to pay for the claims, so they're very careful about that. Now, do you think the insurance rates are going to go up? You mentioned they're trying to keep the rates at a certain, not allow rate increases, but do you think it's going to get more expensive for us, or are these companies going to under? What's going to happen? We are going to see rate increases in California, no matter what. Right now, believe it or not, California has some of the lowest rates in the United States, out of any state, because of this rate suppression. It hasn't been able to naturally increase like the other states have in order to handle inflation, and supply chain issues, and the cost of building, and labor shortages. We've suppressed them, so we all have a false sense of how much our insurance should cost, but it's an illusion, because right now, we have insurance companies that can no longer do business, so they're leaving. That gives us an availability crisis. That's what makes us different from all the other states, because not just California is dealing with this wildfire issue. Everybody west of the Rockies, all the states, the whole western part of the United States is going to be on fire any day now, because we're getting into fire season. We all are alike in those same issues. The problem is, is that our commissioner and our insurance department is the only one that's suppressing the rates that need to happen, the rate increases that need to happen. It doesn't have to be, it's proportionate. An insurance company might say, I need 10% rate increase across the board, but it's not 10% for every single person. It might be a little bit higher for somebody that's in an area where you're living in the forest, and it's a little bit less for the people that are living in downtown Sacramento, or downtown LA, where the risks might be a little bit different than what they're happening up in those urban areas, or urban wildfire areas. We're having increases right now. A year ago, somebody was paying $1,800 for a million dollar house for their homeowner's insurance average per year, and now they're going to be paying anywhere from $10,000 to $15,000 a year, and that's on a million dollar house. If you start, there's not a whole lot of million dollar houses left in our area. Most of them, just like down here, are even higher than that. The cost to rebuild is, in our area, anywhere from $400 to $1,000 a square foot, depending on the features of the home. You can do the math. It's going to cost a lot to rebuild a $3,000 to $5,000 square foot. In the more urban areas, they're paying anywhere from 15% to 40% more, depending on all the coverages that they might have, or where exactly they're located in these. Not only are they paying that much more in premium, they're getting less coverage because the policies aren't as benefit-rich as the ones that we used to have. The deductibles, the first dollar, are in the $5,000 to $10,000 to $25,000 range. Where they used to have a $1,000 deductible, they're now accepting $10,000 of the risk up front. That's their deductibles now. While we're talking to Chris about the impact of insurance companies leaving, we also had a chance to talk to one of our fans, Mitch Fraser, who reached out to us with his story about his insurance going up significantly. Here is a little bit about his story. Mitch, it's great to have you on. Thank you for coming on. Can you tell us what happened? Your insurance got dropped and you had to renew it, right? Can you tell us the story? We were renting this house before and then we decided to move up here. This is in the foothills just east of Sacramento, south of Auburn. We're right just off of Highway 49. We moved up here a little over a year ago when I contacted my insurance agent and I told him we're moving here. At that point in time, he got back with me and he said, don't change anything. We were renting the house before. We had renter's insurance. He told me, don't change anything. But then earlier this year, a few months ago, the address on the policy was our old house in the Bay Area. I contacted the agent and I said, can we change the address on the policy? She said, it's a renter's policy. We really couldn't. We couldn't put it to, we couldn't have the address as being the property itself. And then she stated that because of details, whatever, it really wasn't a good policy. It really didn't protect us properly. And then when we went into the process of looking to renew the policy, it was denied. And so I got on the phone and I'm calling up many other agents and everywhere I went to, it was denied. And it turns out that there's a policy of last resort in California, which is the fare plan. And I got one quote on that and it was around $6,000. It was over $6,000, $6,200, $6,300. And that was for the fare plan. The fare plan doesn't cover everything. So then you actually have a supplement on top of that. And so it was just, it just kind of gets to a nightmare. Everybody you call, I called GEICO, Progressive, USA Today, Farmers, State Farm, and they all said, no, we're leaving California. And so they had all left California. So that's really kind of how this whole thing started. And talking to the agents, I swear, some of them felt like they're about to cry because they had long-term customers that they're trying to service and they just couldn't get policies for. In the area where I live in, we also have like community groups, online community groups, and everybody's saying, you constantly see, are you able to get fire insurance or homeowner's insurance? And so it really has kind of turned into a really huge nightmare. And then like I mentioned earlier, I got this letter from the California fare plan. And so they rate homes from zero to 30 for severity of fire risk. My house has a rating of two. So it really isn't even, the carriers, I honestly don't really know what's going on. Why are the carriers just dropping California whole? And how much is your value of your home roughly? Probably around $450,000, somewhere in that range. So your insurance fee is $6,000 just for the fire and the $450,000 home? Right. That was the worst one I got. I ended up, because I raised the deduction on it, I was able to get it for just about, just a tad, a couple of bucks under $5,000. Is what I ended up, what our insurance ended up coming out to. Now, wasn't the fees supposed to be fixed? So this is, our commissioner did that to keep the rates from going up in the state, right? During the COVID, that's what he wanted to do, right? Why are the rates much higher? So in the property insurance, in order to maintain any type of availability, the commissioner had to allow property rates to increase so they wouldn't make insurance companies insolvent. Because that's bad for everybody. If companies go out of business, there won't be any money to pay for claims on policies that are tailing, that are left. So if we have a big fire, the potential is that they would have no insurance, even though they paid for the insurance. So the commissioner did have to allow the rate increases in those areas for the property insurance. What he has allowed is not enough for the insurance companies to remain viable. It's not enough. And so he suppressed the rates. And our rates in California are lower than anywhere else in the United States. But we've also paid $40 billion in wildfire property claims just in California. So in order to keep the system healthy, we're going to have to increase those rates somehow to become viable. And they can be spread. You know, insurance is a risk. It's a pool of risk. So the whole state participates in all the claims that happen in the state. That's the only way that it works, because you're not going to pay a million dollars for your homeowner's insurance so that you can get a million dollars back out. That wouldn't be feasible for you. But you're going to pay a portion. And it's a little bit of gambling, right? So the insurance companies are gambling that they wouldn't lose. Hopefully a lot of people. A lot of people. It'll be dispersed, right? And they're very good at making sure that they don't get oversaturated. And that means that in any specific area that could possibly, like Paradise or Santa Rosa, where they lost a whole giant subdivision of houses, no one insurance company wants to be responsible for all of that because they would go out of business. There's no way they could withstand that type of loss. The way they do it now is they make sure that they only take a percentage. So if we have enough insurance companies for each of them to take a percentage of the loss, if we have a huge loss, then that keeps them all healthy. It keeps them all able to continue to do business. Is there enough insurance companies out there to insure us? No. That's what sets us apart from the rest of the states that have a wildfire problem. We don't have an availability of insurance companies. So I keep quoting State Farm because they are the largest. And they have said no more. We're not going to write business in California anymore right now. They're not leaving the state per se because I don't think it's their intent not to come back. They want to come back once they can work it out with our insurance commissioner. Our biggest problem in California, or probably anywhere where we're dealing with politicians, is I can't imagine any kids saying when I grow up, I want to be the insurance commissioner. I mean, it's not very sexy. It's just like insurance. And so what it usually is, and we've seen this ever since Prop 103 happened in 1988, and we started electing commissioners, it's been a stepping stone for them to move on to bigger and better things. The Garamendi and the Senate. We could go down the line for all the commissioners and see that they're somewhere else. They're probably where they wanted to be. And maybe this commissioner wants to be governor. I don't have any idea, but I know that he didn't grow up wanting to be the insurance commissioner. And so his job is to make sure that in order for him to remain politically viable, he needs to keep the masses happy. And in order to do that, he needs to not let the insurance company raise the rates to an adequate level. Otherwise, they won't vote for him again for anything because they'll remember that that guy raised my insurance rates. And so that's the problem. That's the problem that we're having in California. And we can't seem to get any of the other legislators on board either. Nobody wants to sign off on something that's going to increase rates because they're not going to be very popular in their little neck of the woods either with their constituents. And so that's what's made it a political problem instead of a business problem because that's what it should have been. That's what it should be. We should just be looking at the bottom line. Insurance companies don't pick and choose. They don't know you. They only know the numbers. They have actuaries that determine how much they have to charge in order to be able to cover the claims that might happen. And so it's not personal. But people, we take it personally when the insurance companies raise our rates or cancel us, those types of things. We're the middleman, so we deal with the public every single day. And they are very angry. And we live in an area where their rates are going up, you know, the 10 times that I talked about. So you're hearing from the people? Every day. Every day. I've had to institute stress management in my business. I've had to bring mental health. People get mad at you guys, right? Because they're so angry. Well, they don't have anybody else. You're the face of the insurance company. We are the face. And they can't call anybody else. They're going to get a head nerd number, and they call, and you know, nobody's going to talk to them. So they call and talk to us, and we're their punching bag, basically. And it's not just our agency. It's anybody that's forward-facing with the clients. All the agencies and all of the brokers all across the state are dealing with the same thing. They're having to talk with the people and, you know, take on the anger. And it's, I totally understand, because we're at the end, right? Everything that's happened, inflation and all their costs of living have increased from over the past two years dramatically. And insurance is slow because all of these other things they've been paying affect how much it's going to cost the insurance company to settle a claim. So we're pretty close to the end as far as the inflation, you know, all of the different items that have inflated. So they're already, they don't have anything left. And now all of a sudden we're coming in and just hitting them when they're down. And so that's it. Old country soaps are handcrafted, long-lasting soap bars made on a farm in South Dakota with soothing natural ingredients without harsh chemicals that can dry out your skin. They can produce a creamy lather, unlike anything you've tried before. Just a great American-made product that will leave your skin feeling soft and smooth all day long. The soap is multi-purpose. You can also use it for your hair. It's great for shaving and safe for pets. Every order comes with an exfoliating soap bag. It can hold smaller pieces of soap and can prevent soap bars from slipping out of the hand. After each use, just leave the soap bar inside and hang dry. It will last a long time. This company does not sell on Amazon. So go to oldcountrysoap.com and reward yourself and your loved ones. Use promo code INSIDER and get an exclusive 20% off your order. Let's support a company that brings back traditional American values and American manufacturing. Now let's go back to the interview. What are your customers doing? Can they afford this kind of increases? Because it seems like it's a lot, like $10,000 a year for a house to get insured, like that seems like more than somebody's tax payment. Yes. Yes, it is. It is. People that have paid their houses off where they don't have a mortgage, they've chosen to self-insure. And that's bad. They're uninsured. And most of those, if you can't afford to pay the insurance, it's not likely you'll be able to afford to rebuild your house without some help. We're going to have some bad wildfires this year. We had a lot of rain. We have a lot of underbrush. We have a lot of dead trees from over the last several years. Just one small thing can happen and we're going to end up with the giant wildfires. Our whole state will be on fire. And we'll end up with a huge, huge catastrophe this year. And pretty good percentage in every area is going to be uninsured. And that's going to be very sad. They won't have anywhere to go. They won't have anything left. Your home is typically your largest asset. Sometimes it's your only asset. And there's no way to solve that. That's just what it is. The people that have been able to sell their homes and move out of the state, a lot of people have done that. Or they've sold their homes and moved on to smaller units on their children's property or vice versa. They've had to sell. Or they've become renters. Or they've moved more into the urban areas because they just can't withstand those types of things, those types of increases. Now, what about the urban areas? So the urban areas are increasing, just not at the same rate. We've seen anywhere from 15 to 40 percent. It just depends on the characteristics of the house, too. If it's a newer house, then the insurance rates are less. It depends on the type of roof, how old the roof is, when the electrical was done. I don't want to say, well, pride of ownership, the condition of the home. So they can, you know, they can see things. We have technology now. And so they can see, you know, if you have debris around your house or if your roof is at the end of its life. They're asking for receipts to show that you've actually updated your home. If you've done those things, then the rate isn't going to impact you as much. But if you haven't, then you're looking at much larger increases. It is going to affect every single Californian that owns property. And in terms of insurance, like the value of having insurance, I come from Iran where a lot of people don't have any. We don't have an insurance industry like we do here. And when you lose something, it's gone for good. Right. And what's the value that this insurance industry is delivering to us Californians here? It's allowing regular people, not, you know, the top one percent to own property. We have to go to the bank because not most of us don't have, you know, a million dollars to go buy a house just sitting in the bank. So instead, we leverage it by going and putting a mortgage against the house. Investors help us buy the house. Well, the investors aren't going to continue to allow us to use their money for any cost if they don't have something that's going to guarantee if something happens to that piece of property, that they'll be repaid in full. So it's going to basically stop the economy. We need insurance for not only is this affecting auto and home. Whenever you have this type of a crisis, if an insurance company is losing money in one type of business, say homeowners insurance, then it affects the they tighten up the underwriting requirements on a business. So what they do is make it harder to buy insurance and more expensive if you're a business because they have to make money somewhere in order to keep paying the people and paying the claims. So it'll stop. It'll stop the economy because we won't be able to buy a house because people won't be able to get a mortgage because they have to have insurance to buy a mortgage. A contractor won't be able to step on into your building without showing that they have insurance because you don't want to take the risk on for something that they might cause. And so it just that's just a snowball effect, right? It's going to affect the economy, which really is frustrating to me because it seems to me the government would want us to content the economy to keep flowing because the taxes keep coming in to pay them to pay for all the things that they're voting for us to pay, all of their all the social problems and all of the other things we're paying for. We can't continue to do that if we don't have a viable economy. And this this is something that can crash our economy. If the insurance companies say no more, we're not going to write any insurance in California anymore. It will stop everything here because we won't have any type of collateral, anything for the investors to have to feel safe. Insurance has been going on for since the ships came over from England to the United States. They couldn't the investors didn't want to have their cargo go out unless they had some kind of guarantee that they would get some of their money back if the ship sunk or was pirated or any of the other things that happened. So it's a very, very old and basic tenant to the to any type of economy. So Chris, you have been in this business. This is the third generation business. You guys have been in insurance. What was it like before? And how does all this make you feel? It's always been about helping people. We want to make sure they have the right coverage in the event something happens. And as you can imagine, over the last 75 years, we've had several houses burned to the ground. We've had some massive car accidents and some very scary situations that were always covered by insurance because we always made sure we wanted to make sure we take care of them. And this is the very first time in the history of our agency that we can't always find insurance for people. And that speaks to the availability issue. It makes us feel horrible to tell someone on the phone, I can't find insurance for you. You don't have an option. You can't get insurance. And so that's a tough go. So that's what's changed. And that's what's frustrating right now. Are you worried about the business? Are you worried that you guys could survive in the long run? I try not to think about it too much. But yes, yes, I do. But I try not to dwell on it because it's not going to help with what we're doing right now. We're doing the best we can. We're keeping the people. Right now, a lot of the insurance companies are keeping policies in place. They're still renewing them and still going forward. So that's something that we can hope will continue. And so we have to still service those people and help them with their changes or whatever they happen to need or deal with their claims that they have. We can still write insurance for, well, sort of in Sacramento or in the more urban areas. So we can still help people with that right now, today. I don't know if we're going to be able to tomorrow. And so yes, I guess I am a little bit worried. Like I said, I try not to think about it or dwell on it too much because it doesn't make me very productive. And I don't want to scare our staff because we have eight people that are depending on me to keep this place running and their families too. Because we have benefits and they make a living wage at our business. Now, if the insurance commissioner came to you tomorrow and said, Chris, let's figure this out. Let's work with you guys to fix this. What would you do? Well, I would tell him that he needs to allow the insurance companies to use predictive modeling programs to be able to determine rates. Because right now in California, we can only deal with what's happened in the past. And nothing is as it was. We're encountering new and different things every day. And there's no way to use just history to determine prices of things anymore. We've seen that since COVID over and over and over again. I tell him that he needs to do that. I'd also say that he needs to move along the requests for rate increases that the insurance companies need to take. And it's not just rate increases, it's underwriting requirements and the ways they can give us discounts. The commissioner controls that. It's not just a rate increase or a rate decrease that he controls, but he controls every aspect of how a policy can be rated, every discount. And it just gets very complicated and it gets very political. And so I wish that they could take, I wish I could tell him take politics out of the equation altogether and don't worry about how it's going to affect your individual future or your individual career and care more about the people, the people. We all need to be able to continue life as as we have. And we can't if we don't have access to the insurance that we need in order to keep our lives moving along. Do you think that people will accept it if they are told that, you know, we tried to fix the rates but it's not working, we need to increase them now? Do you think that people will accept that conversation or do you think that people will get mad? Well, I think nobody's ever happy about paying more. But if it comes down to the difference, they're going to pay more no matter what. They're going to pay more because we don't have enough insurance companies to write business. We're going to end up going into what we call the non-standard or surplus lines market. And that's where the Department of Insurance has no control of the rates. Those are all based outside of California. They don't have to deal with the Department of Insurance. It's a lesser or a less robust policy. It's not as good as an admitted California insurance company. And the rates are unregulated. So you can imagine what that means. They can charge whatever they want. And when you do that, without the competition of having the admitted insurers, it's going to drive the rates up so high that it's going to be cost prohibitive for any of us to have insurance. Why are so many people leaving California? It wasn't long ago, people from everywhere wanted to move to the Golden State to enjoy a better life. Sadly, the standard of living has been dropping in the past decade. Are you like me and wonder why this is happening? I'm Siamak Khorrami, host of California Insider. In our film, Leaving California, The Untold Story, I take you on an intimate journey of love, loss, tragedy, and hope as residents face the prospect of leaving their beloved state. Everyday people like you tell their stories about why they have to move out of the state, even though they don't want to. Experts and policymakers also give insights about what's happening behind the scenes. Together, we get to the root cause of this exodus. Go to leavingcalifornia.com to view the first 15 minutes of the film for free. By watching Leaving California, you can be part of the solution. Again, go to leavingcalifornia.com. Now, do you have any thoughts for our audience? What should our audience do? Call your local assemblyman, call your legislative representative, or write a letter or email them. They have to be pressured into pressuring the Department of Insurance to make these changes. I can't do it by myself. You can't. None of us can do it by ourselves. But if we put enough pressure on the people that are representing us in our government, then they're going to have to do something. They're going to have to make a move. Something's going to have to give with this. Because like I said, our economy won't thrive unless we do something about it. So the regular person can do what we need to do and ask our voted officials to do what we voted them in to do. Now, any advice for a regular person while we have you in terms of like, what should they do about their insurance? Pay your premium on time and do not let it cancel. It's a big deal because insurance companies are not, not all insurance companies are rewriting policies. So if your state farm policy cancels today, you will not be able to get a new policy with them. And then you'll come into our regular market where we're having a hard time finding somebody to insure you. We have Progressive Insurance Company, I'm sure everyone's heard of Flow and Progressive Insurance Company. They, they have a 20 day wait. So if we put, we have to take your money and all of your information, plug it into the system, and then they will tell us anywhere from 10 to 30 days that sure, okay, now we're going to bind your policy or no, we're not going to. So that's, you, you potentially could go without insurance, which if you had a car accident, wouldn't be a very good thing. Plus you wouldn't be following the law, which says that we have to have car insurance, nor would you be protecting your house in the event, shoot that, that your water heater broke and you have a big giant water loss. So pay the premiums, pay them early if you can, if you're offered, you know, a renewal for your insurance. And then secondly, if you do whatever you can to make sure the condition of your property is at its top form, do whatever you need to do to make sure your roof is in good condition, that you don't have dry rot, that your, the paint looks good, that you don't have any debris around your side yards or in your front yards, that you maintain the bushes, keep the trees off the roofs of your house. Those types of things are going to lead to you being able to keep your preferred or standard insurance, because they are looking, they're, you know, they're looking to get rid of people that don't quite meet their risk profile. Do you have any other thoughts for our audience? I just want to re-emphasize that you need to talk to your neighbors and your friends and your family about the issue. It's affecting every single one of us and that we need to get the word out and let people know that we need to talk to our representatives and make them make a change. Our government is the only, the only way through this or past it because of the regulations that are involved with insurance in our state. Chris Hubbard, President of Hubbard Insurance Solutions. It was great to have you on California Insider. Well, thank you very much. If you like the show and our content, you should go to InsiderCA.com and sign up to our newsletter, because we never know what can happen with social media and other platforms in terms of distributing our content. If you'd like to come on the show and be an Insider, you can reach out to us at cainsider.com. Again, it's cainsider.com. We'd love to have you on the show to tell us what's going on in your field in California. Thank you for watching.