Associated Press State & Local Wire
SACRAMENTO: From homeowners who file claims and face increased rates to insurance companies who have stopped issuing new policies altogether, homeowners insurance in California is hitting crisis level, according to the state Department of Insurance.
Premiums have risen by more than 15 percent this year and State Farm General Insurance Co., the state’s largest insurer, has stopped writing new homeowners policies. California homeowners who file claims increasingly and facing inflated rates or don’t get renewed and are blackballed.
State Sen. Jackie Speier, D-Hillsborough, the chair of the Senate Committee on Insurance, said she plans to hold hearings on the industry next month.
Speier learned of at least one of the problems the hard way. After filing a $2,000 homeowners claim, her sole claim in ten years, her company nearly doubled her premium.
The insurance industry claims mold is the reason for the insurance woes. Water-related claims paid by insurers representing two-thirds of the market in 1997 totaled $206 million. By last year that number had more than doubled to $430 million, according to the Insurance Information Network of California.
“Water damage is a major cost driver of claims in California,” said Pete Moraga, a spokesman for the industry group told the San Francisco Chronicle.
But some consumer groups say the real problem is the stock market, where insurers have lost a lot of money. California’s top 10 property and casualty insurance companies collectively lost a quarter of a billion dollars in companies like WorldCom, Enron and Adelphia, said Doug Heller, senior consumer advocate for the Foundation for Taxpayer and Consumer Rights.
Insurance industry representatives say they have had some investment troubles, but that spiraling claims costs remain the main reason for the current situation.
“It’s not that the stock market has caused our losses, but it just has not made available the kind of investment income that we had before,” said Bill Sirola, a spokesman for State Farm in Sacramento.
People who can’t get insurance in the open market can use a state-run, industry-financed program called Fair Access to Insurance Requirements, which was created by the Legislature after the 1994 Northridge earthquake.
The program’s coverage costs more than regular insurance, and covers only basic fire damage, but a 50 percent jump in applications to the program this year is just another indicator of the tightening market.
Mike Harris, a program spokesman, said homeowners should limit their claims to major damage to avoid being dropped by providers. But Nanci Kramer, a spokeswoman for the California Department of Insurance said that practice is unfair to consumers.
Both Kramer and Speier said they know of consumers who had been blackballed for simply calling to inquire about a claim. Both said the practice probably is illegal.
“There are some practices by insurers that are either illegal or unethical,” said Speier. “They’re using the guise of mold as a reason to increase premiums in California. It doesn’t all add up.”