Remaining carriers must shoulder huge nat-cat risks in the state, which often sees enormous claims from wildfire damage. Robbie Arnold (pictured), managing director at Charles Taylor, a global claims services provider, said he expects insurance companies to respond by tightening their underwriting and raising premiums.
“When you have a lot of carriers pulling out [of the market], it puts a lot of pressure on the existing companies to try to offset that risk with underwriting,” said Arnold. “So, they’ll start putting these large deductibles or special coverage limitations.”
Claims adjusters must strike a balance between advocating for policyholders and respecting policy limitations set by insurers, avoiding “adversarial situations” during the claims process.
“As claims professionals, we have to adjust to these new guidelines and communicate with the insureds what these policies represent,” Arnold added. “The balance is to try not to create adversarial situations.
“We want to be on the side of the policyholders, we’re trying to interpret policy, we’re trying to calculate damages and quantify the extent of the losses and give that information back to the carrier so that insureds can recover as soon as possible, especially from a property standpoint.”
Last month, California’s insurance market was rocked by announcements from State Farm, Allstate, Farmers, and AIG, saying they would stop sales of new policies, citing headwinds brought on by catastrophic weather events, inflation, and economic conditions.
California’s insurance troubles are only just beginning, according to Arnold. Carriers could withdraw at a more rapid pace in the next few years, leaving fewer and fewer options for homeowners.
“We see issues coming into the next year and the year after, because as time progresses, it will become harder and harder to find policies,” he told Insurance Business.
Many carriers have already implemented rate increases to cope with losses, but with construction costs going up, more companies will feel pressure, Arnold added.
“They are accounting actuarially for what an average claim is going to be, but by the time the losses occur, everything will cost significantly more,” he said. “I see in the next year to five years is when California is really going to get into big trouble.”
California state regulators must work with the insurance industry to find solutions amid an increasingly challenging market for homeowners.
“I think the state could work with the carriers a bit better to find out where these rates need to sit,” said Arnold. “The problem is they don’t know how to price things out appropriately, and if the state doesn’t want to approve rate increases, they handcuff carriers into making decisions on whether to stop writing policies or withdraw from the state.
“[The state] needs to look at a deeper level to figure out how this works. For every premium dollar that comes in, [carriers] can’t pay out $1.50 in losses. It’s not a sustainable business model.”
Meanwhile, large players exiting California’s insurance market would also create more opportunities for remaining carriers, and leave spaces that can be filled by nimble, tech-driven entrants.
“A lot of [the players] in online marketplace can come in and be a little nimbler. They might be able to put policies in place with a little overhead, and that will allow them to take on additional risk,” Arnold said. “There’s certainly an opportunity for some aggressive young new companies to come in and stake a claim [in the market].”
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