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What is the California Home Insurance Crisis?

2024 Update

As a leader in property management, Good Life has been closely observing the California home insurance crisis over the past few years. These changes are more than just industry trends. Rather, they directly impact the way homeowners and property investors will approach their insurance needs in California.

In recent years, California’s home insurance landscape has undergone substantial changes. These new changes are reshaping how homeowner’s approach insurance in the golden state. Collectively, these compounding circumstances have caused the California home insurance crisis

Marked by increasing insurance rates, regulatory challenges, natural disasters, and the withdrawal of some insurance companies from the state, this crisis is increasing homeowners insurance in California across the board. In this article, we will explain the challenges and considerations of California’s new home insurance environment.

Table of Contents

Understanding the California Home Insurance Crisis

Over the last few years, the California home insurance market has embodied the “hard market,” a term used to describe a state of the market where consumers have limited negotiating power. This shift in power is largely due to changing interactions between insurance companies, regulatory bodies, California’s broader economy, and the environmental landscape.

Who Determines Home Insurance Pricing?

Home insurance pricing is created by insurance companies and regulatory bodies. Regulatory bodies are government agencies or organizations that enforce laws and regulations in California to maintain fair market practices. 

When it comes to home insurance, regulatory bodies serve the following functions:

  1. Set standards and guidelines for home insurance companies to follow.
  2. Approve rates.
  3. Uphold consumer protection policies.
  4. Oversee the market.
  5. Oversee licensing and compliance of insurance companies and agents.

Insurance companies and regulatory bodies work together to establish fair and sustainable rates. However, there are currently several factors that are disrupting the balance and accessibility of the insurance market in California.

What Factors Have Led to the Home Insurance Crisis in California?

Increased frequency and magnitude of natural disasters

Over the past decade, California has experienced a notable increase in the number and magnitude of natural disasters. Collectively, these natural disasters contributed to the California home insurance crisis.

Over the past few years, California has become notoriously known for catastrophic wildfires that have caused widespread devastation. Some of California’s largest and most destructive wildfires have occurred during the last ten years. For example, the Camp Fire of 2018 covered an area of 153,336 acres and destroyed almost 20,000 structures.

In response to the growing wildfire threats, California has enacted policies and legislation to mitigate fire risks, support affected communities, and manage forest health. However, these policies and legislation haven’t regulated home insurance prices.

Insurers, now facing enormous claims from these natural disasters, have had to reassess their risk models and pricing. Unfortunately, this led them to increase their premium prices and, in some cases, not insure homes in high-risk areas.

Moreover, the threat of earthquakes has always been a concern that further complicates the California home insurance crisis. The rise in natural disasters prompts insurance companies and regulatory bodies to modify policies, often resulting in stricter criteria and increased costs for homeowners. These changes reflect an industry grappling with the realities of climate change and its impact on insurance viability in California.

Coastal floods and earthquakes are two other significant hazards affecting the California home insurance crisis. Both of these natural disasters can cause significant property damage and disrupt local economies.

General inflation and rising cost of reinsurance

Another factor that has led to the California home insurance crisis is general inflation. Consider the following example: when a house burns down during a high inflation period, the costs of construction materials and labor will increase the payout amount for the insurer. In turn, the cost of general inflation is reflected in insurance premium prices for homeowners.

Related to this specific example is the cost of reinsurance, or insurance for the insurance companies. Yes, even insurance companies need insurance! This protects them from large-scale losses, particularly the ones seen from increasing wildfires in California. As wildfires and other natural disasters increase, reinsurance costs also rise.

Social inflation

Social inflation refers to the trend of steadily rising insurance claims, a phenomenon that is becoming more prominent in California. This is exacerbated by increased litigation and judgment awards in lawsuits that require insurance companies to pay large sums of money to the defendants.

Some societal trends feed into this phenomenon, too, particularly against large corporations. For example, when the public harbors a negative sentiment towards insurance companies, policyholders tend to sue them for larger amounts and often hire aggressive legal representation. Likewise, juries might be influenced to vote in favor of homeowners, causing insurance companies to pay higher amounts than in previous years.

This situation is being compounded by changes in broader litigation strategies. For example, California is seeing a rise in third-party litigation financing, where outside parties fund lawsuits in exchange for a portion of the settlement.

As insurance companies struggle to keep up with these changes, the impact trickles down to homeowners.

Regulatory bodies, responsible for maintaining a balance between fair insurance prices and helping insurance companies remain in business, are finding themselves in a challenging position. They strive to ensure that insurance companies can sustainably cover claims for their clients while maintaining fair home insurance rates. However, the impact of all these factors have caused regulatory bodies to establish high interest rates, which has caused home insurance to rise quicker than inflation.

* Click to enlarge

Causes and Consequences of Insurance Companies Leaving California

A rising number of insurance companies have left California, which has imposed severe implications for homeowners. 

There are several reasons why insurance companies are leaving California, but the most prominent are higher claims and higher losses. Insurance companies are affected by regulatory challenges, market conditions, financial viability, rising reinsurance costs, and consumer impact. The state’s strict regulations make it particularly difficult for insurance companies to adjust their rates fairly in response to increasing risks that drive high claims and losses. In other words, insurance companies have struggled to profit in California and are deciding to leave the state.

Fewer insurance companies in the state means less competition and fewer consumer choices. As such, consumers are experiencing challenges in finding coverage options that fit their needs, and when they do, these options are often at higher prices. This is particularly challenging for homeowners who live in high-risk areas prone to natural disasters.

Insurance companies leaving California, along with increasing factors that are escalating claim risks, are intensifying the volatility of an already rapidly evolving market. These changes fuel disagreements between homeowners, insurance companies, and regulatory agencies, particularly over pricing issues and future market projections.

Latest Developments in California Insurance News

List of homeowner insurance companies that are limiting business in California or have left all together

Responses From Insurance Companies and Government Bodies

As the market continues to change, insurance companies and regulatory government bodies are reevaluating their strategies to keep up. On the one hand, insurance companies are struggling to make a profit and are faced with difficult regulatory challenges. On the other hand, regulatory agencies and government bodies in California are trying to balance the financial viability of insurance companies and protect their consumers. This has sparked a critical debate over how to set future projections.

While insurance companies emphasize the need to consider recent trends and escalating events, such as the increasing severity of wildfires, regulatory bodies caution against relying solely on past events as definitive predictors of the future. The resolution of this debate will shape the future landscape of insurance in California.

Insurance Companies Are Not Being Protected, and Some Are Pausing New Business

As mentioned earlier, insurance companies rely on reinsurance to help them pay their claims. While homeowners and consumers are protected by regulatory bodies and government agencies, insurance companies are not. As such, reinsurance companies are able to set their rates as they like. Although regulatory bodies aim to protect consumers, constraints set on insurance companies limit the companies’ ability to adjust their rates in response to changing market conditions.

Since this situation is preventing insurance companies from being profitable, some insurance companies have chosen to pause issuing new policies in California. For instance, State Farm, one of the major carriers, has not left California entirely but has stopped issuing new homeowner insurance policies. This decision was a major headline in the California insurance news and industry. State Farm’s statement published on May 26, 2023 cited its departure resulted from increased construction costs, growing catastrophe exposure, and a challenging reinsurance market. 

New Insurance Protections for Consumers

In 2022 and 2023, California introduced new laws to enhance consumer insurance protections. Key legislative measures include SB 1040, which empowers the Insurance Commissioner (the state’s insurance department) to take action against those selling insurance without proper authorization, especially targeting scams.

Additionally, SB 1242 strengthens the fight against insurance fraud by ensuring insurance agents and brokers receive proper training on spotting and reporting fraud. This bill also requires insurance agents receive continued education, finger printing, and list their license number in emails.

How to be Successful during the California Home Insurance Crisis

As California’s home insurance landscape evolves, homeowners must take a careful, informed approach in their search for an insurance provider. This section delves into strategies and insights for effectively navigating the home insurance market. We’ll explore practical steps for selecting appropriate insurance coverage, managing rising costs, and staying ahead of regulatory changes so your home can remain well-protected.

Interview Insurance Agencies

In a fast-evolving market, it is crucial that you choose an insurance agency that understands your specific needs, unique circumstances, and/or financial constraints. For example, if you live in an area that has been or is prone to natural disasters such as wildfires, you should look for an agency with a proven track record specializing in properties in high-risk fire zones. 

Here are some key questions and considerations to guide you:

  • How long have you been providing home insurance in California, and do you specialize in any particular type of property or area?
  • Can you share examples of how you’d handled policies for homes in high-risk areas?
  • How well do you understand the specific risks associated with my area or property type?
  • How do you determine the right level of coverage for a property like mine?
  • Can you walk me through your claims process? How are claims handled, and what is the average resolution time?
  • What support do you offer homeowners during the claims process?
  • How are your insurance premiums calculated, and what factors might affect my rate?
  • Are discounts available, such as for home security systems, fire resistance, or long-term loyalty?
  • How do you keep your clients informed about changes in their policies or new regulations?

Understand Challenges in High-Risk Areas

The designation of high-risk areas in California primarily concerns regions vulnerable to wildfires, earthquakes, and floods. Owning property in these zones will pose difficult challenges, especially when obtaining insurance coverage and managing high premium costs. Regions prone to wildfires, such as Southern and Northern California, are particularly vulnerable. The rising frequency and severity of wildfires in these areas have made it difficult for homeowners to find companies willing to provide coverage. 

Similarly, areas near fault lines, like the San Andreas fault, are classified as high-risk zones for earthquakes. Homeowners in this region might find that standard insurance policies do not cover earthquake damage, requiring them to purchase additional (often expensive) earthquake insurance. Furthermore, certain coastal areas in California are considered high-risk due to their vulnerability to flooding. Similarly to earthquake insurance, flooding insurance is not always included in standard homeowner insurance policies.

If you are a homeowner in these areas, it is essential that you conduct thorough research and understand the specific risks associated with your property’s location so that you can find proper coverage for your home.

Seek Experts Who Help You Understand Policy Details

Along with a personalized approach, you should look for agents and companies willing to walk you through your policy. Be sure that you understand the ins and outs of your policy, such as limitations, exclusions, policy changes, and risk assessments. 

When insurance policies are impacted by legal and regulatory changes, things get even more complex. Working with someone who takes the time to explain how these changes impact your policy will give you peace of mind. State regulatory laws might change what your current policy is able to cover, so understanding and keeping up with regulatory changes will keep you protected.

Maintain Long-Term Relationships With Insurance Companies

Maintaining a long-term relationship with your insurance agent or company can be beneficial in such a volatile market. If you have worked together for a long time, your insurance company will have a complete scope of your insurance history and specific needs, leading to a more personalized and efficient service. Such familiarity also facilitates a smoother and quicker claims process.

Furthermore, loyalty often comes with perks; many insurers offer discounts to long-standing customers. Having a long-term relationship with your insurer also means that your coverage can be adjusted more readily as your needs change.

Additionally, staying with the same insurer can save you from the hassle and time involved in switching providers, negotiating new rates, and familiarizing yourself with a new policy. In cases where you are thinking of switching companies, make sure to try to communicate your needs and talk to your insurance agent first. A sustained relationship with your insurance provider will foster trust, better communication, and can lead to financial advantages in the long run.

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So what’s going on in the insurance market right now is in general inflation that we’re all aware of now, right? There’s also the cost of re-insurance. Then we also have an uptick in weather events that we’ve been all hearing about. So these insurance companies have to have their pricing approved by these regulatory agencies in California. Correct. That’s correct. Yeah. Okay. And that was part of the cause you’ve stated of why insurance rates went so high and why some insurers are leaving California. Is that correct? Right. So we’ll explain that a little bit. So the other thing that’s happened is as a result of inflation, they’ve increased interest rates. So now you have this liquidity-wush that was it was there could have gotten historically a great return, a normal stable return on investment in the insurance industry. That’s not happening now, but hey, I can take my money down and get government bonds and I can get a great return. So all of a sudden the amount of money that’s there for insurance is not as significant and that’s driving capacity problems. We don’t have enough liquidity in the market to really ensure everything. And well, Eric Mottenbocker is here with us today. He’s the owner of Pacific Premier Insurance. He’s a friend of known him maybe a couple of years now or so. We’ve been working together. He does all of our business insurance at good life and my personal insurance. And I’m super excited to have him on the show because he made insurance easy for us. And that’s a big deal to me because my whole life is focused around making owning rental property easy for people. And we can get into that. But yeah, he’s just has a great organization, great company, and I’m excited to welcome you to the show. It’s up, Eric. Thanks for having me. Yeah, man. I’m excited. It’s super. So tell us a little about before we jump in just a little bit about who you are, how you got started an insurance, a little bit of background. Yeah, so I’ve been in insurance for 15, 16 years now, gone on 16 years started with like the way most people get started. One of the big, big name companies, brand name companies, farmers insurance. Got a lot of great experience there. Farmers, I found they I’m going to knock this mic all over the place. Really? Yeah, I’ll deal with that. So farmers, they have you doing a lot of different types of insurance. You’re doing personal, you’re doing some commercially doing life, I had a financial services license. So I got a really quick exposure to a lot of different types of insurance. And I enjoyed that. I got the spectrum, but I always knew, you know, I wanted to instead of going a mile wide and an inch deep, I wanted to go a mile deep and an inch wide. I wanted to be a specialist and something. So that’s what we, you know, seven years of building an agency there. And then ultimately we gave it back to farmers. We said, hey, we’re going to go do something else. And we left and started Pacific Premier Insurance. And that’s an agency focused on at the time. I thought we would just focus on property and casualty. So we have a commercial division and a personal division. I’d seen that model work for other people. And so that’s what I wanted to emphasize. And so we’ve been doing that for eight years. And, you know, transparently, one of the things I learned during that time was even within those disciplines, it helps to have a niche that you really focus on. Because in the property and casualty world, a veterinarian is not the same as a rougher is not the same as a CPA. They all have very different concerns that keep them up at night. So they have different insurance companies that cater to those different applications, different questions, different marketing. And so when we were trying to do insurance for all those different types of groups, it was a little bit bumpy and chaotic for us. And then COVID happened and we thought, hey, you know, marketing is changing. I can’t get in front of these people the same way that I used to be able to. What’s always been our focus, what’s always been our niche, what’s always worked for us. And we put that all on the table when we just said, hey, you know, we really like real estate. We’ve always, you know, I like real estate personally. I think that it’s a fun industry. It’s essential. And so we were trying to think, okay, let’s always work for us. Let’s focus on that for a while and just see how it goes. It’s an experiment. And ever since we’ve been focusing on that on the personal line side, that’s residential, wonderful units. Yeah. On the commercial side, that’s everything from real estate syndicates to property management groups to adjacent services. So everything to do with real estate. And we’ve just been having a ball doing that. And it just happens to be that the marketplace is so crazy right now in property internationally. But in California in particular, it’s kind of like the epicenter almost. That we are just, we find ourselves in higher demand than ever before. Yeah. And we’re just really excited to be, to be what we’re doing and helping people. Yeah. How’s it feel to be in an industry where traditionally like property management, there’s not too much exciting about it unless you make it exciting to be like the cool kid where people want to actually talk to you and learn more about what’s going on because it’s funny insurance is kind of this thing that you kind of just need. But what’s been going on in California over the past 12 months, I guess, has just been crazy where people are losing coverage. They can’t get coverage. Coverage is, you know, three times in the cost. So tell us a little bit about what’s been going on in California. Yeah. Definitely. Well, it’s been sort of a shock to us to, I mean, again, doing this 15 years, I’ve never seen a, we call it a hard market. I’ve never seen a market this hard. And I have, you know, mentors and friends in the business that have been doing this 40 years. They’ve never seen anything like this. What do you mean by hard? So a hard market means that there’s not a lot of negotiating leverage on the side of the consumer. The, the, it’s kind of being driven right now by the carriers and carriers, insurance companies. I say that interchangeably. And one thing I want to say too is just I’m going to try to keep this at a 40,000 foot view. She doesn’t want to get too wonky. But if you want to dive down into anything that you think your audience would be really interested in, let’s do that. So what’s going on in the insurance market right now is insurance pricing is created by insurance companies in a conversation with insurance regulatory bodies. They can’t nobody can create them on their own. They have to compromise a bit there. What the inputs are that are causing pressure on rates going up are in general inflation that we’re all aware of now, right? So when a house burns down the cost of wood, the cost of nails, the cost of, you know, contractor labor, their gasoline to get to the jobs site, all these different things have gone up, right? There’s also the cost of reinsurance. And this is insurance that insurance companies buy, which I had no idea about, which is very interesting. Yeah. So they buy insurance also so that if they have a catastrophic loss, they don’t go insolvent. They can pay all the claims and keep going. So we have those two inputs. Then we also have an uptick in weather events that we’ve been all hearing about, you know, more fires in California, more hurricanes in Florida, freezing events in Texas that have never happened before to the, to the, to the magnitude. Right. We just had a name storm hit, hit San Diego, hurricane Hillary. Yeah. And these things are kind of happening at the same time. And then there’s also social inflation that’s happening, which is sort of the concept of increased litigation and increased judgments as a result of that. So it’s, it sort of created the perfect storm of the things that would buoy or F’s insurance rates. And then so that had caused because rates hadn’t been able to keep up with them. Again, that’s that conversation that’s happening with the insurance companies and the regulatory bodies. Yes, that caused an imbalance. And so the insurance property and casualty insurance nationwide has been unprofitable for us. What is casualty, by the way, explain that casualties like litigation lawsuits and that sort of thing. OK, perfect. Property and property and casualty. OK, perfect. So these insurance companies have to have their pricing approved by these regulatory agencies in California. Correct. That’s correct. Yeah. OK. That was part of the cause you’ve stated of why insurance rates went so high and why some insurers are leaving California. Is that correct? Right. So to expand on that a little bit. So the other thing that’s happened is the interest as a result of inflation, they’ve increased interest rates. So now you have this liquidity, whoosh, that was it was there. You can get a, you could have gotten historically a great return, a normal stable return on investment in the insurance industry. That’s not happening now, but hey, I can take my money down and get government bonds and I can get a great return. So all of a sudden the amount of money that’s there for insurance is not as significant and that’s driving capacity problems. We don’t have enough liquidity in the market to really ensure everything. Wow, that’s fascinating. You just unpacked a lot of factors that I hadn’t really thought about. So we have the insurance regulatory bodies limiting. So we have that in property management. Is this like a good analogy where in property management for apartment owners, you can’t raise the rent more than 10% right now? Is that similar like where they’re having these discussions with these regulatory bodies? Yeah, actually in California, if an insurance company submits a request for an increase that’s over 6.9% historically that’s gone to consumer regulatory agencies. And then when that happens, anything can happen. So there was a situation a decade or so ago where state farm asked for 10, they just rolled the dice and said, we’re not going to stick with 6.9, we’re going to ask for 10. And they got negative 10. So that 20 points swing. Yeah, like slapped on the wrist. It was a big deal. I mean, they made it really tough for them to write in California for well. So that’s why you’re seeing insurance companies say, look, if we don’t have the capacity, meaning we can’t write this to begin with. And it’s not profitable when we write it right now. Why don’t we just leave the state temporarily until they figure this out? I don’t think any of this is necessarily permanent. But I think they’re making a statement saying, hey, until this gets resolved, we’re just not going to participate. And that’s causing a lack of competition for your business too. Right. That’s super interesting. So you’re saying farmers asked for 10 because they have to ask the state farm. So state farm. Yeah. Ask for 10. They have to get approval. They got negative 10. Right. So not only did they not get 10, they didn’t get five or two. There’s a long time ago. This is not related to the issues now. But yeah, it’s not. Okay. This was like a decade ago, as I understand it. Okay. And is state farm one of the carriers that have left California for casualty? They haven’t left California, but they’ve stopped writing new business. That was the big headline this year was because of everything going on. They said, hey, we’re just we’re just going to stop writing new business. Okay. So it’s been paused since I think August. We’ll see what happens. You know, they might come back with the new calendar year capacity for insurance companies is sort of based on a calendar year. Yes. So we might see things change in January. We were really worried at the start of this year about what? Newing that capacity was an issue of what Q4 would look like. Yeah. So a lot of our time is spent working with clients to try to prepare them for the end of the year. Got it. We had these conversations with regulatory bodies. We had reinsurance rates going up due to weather events, you know, just the cost, inflation costs, social inflation, increased litigation, probably around weather events and things like that in large part. Well, that and there’s big money and litigation. So we’re we’re seeing private equity come into finance litigation. Tell me more about that. You can you can make money if there’s a good case like a heart for serious. You can you can you can finance and bankroll a lawsuit. Wow. That’s does it seem right? Okay. Interesting. So that those things happen. What really jumps out to me is like, let’s say that state farm story where these regulates these insurance companies, I know farmers have to do it too, have to go to the regulatory body and ask for price increases. And I don’t know a lot about it. You’d know more than me. But I imagine these price increases aren’t just they’re like, oh, we want to raise prices for a reason. And so we actually like, Hey, we had didn’t a couple big companies lose tons of money, like a lot of the year prior, like talked to me about why they asked for these increases. And what part of the story or the pie, so to speak, are these increases when they ask for them? What part of the issue is coming from the regulatory bodies, meaning like عند potentially bad decisions with not letting them raise prices to a rate that, you know, they need to be profitable. For sure. Well, I mean, just disclaimer, I’m not in those rooms. It’s above my pay rate. I’m not an insurance company or an agency. So we contract with them and we work more with our consumers to get insurance from the carrier. So I don’t, I have some insight, but not, not, not a whole picture. Are you not allowed to speak poorly about insurance hate? No, no, I’d say whatever I would say whatever I want. And by the way, on that point, look, there’s a political aspect to this too. Yeah. And like, I would say like, I’ve been known to make an off-color joke here and there about Paul, but I think that’s part of being a politician. Like you got it, you get to take that, you know, those, those, those punches, but a real talk. Yeah, but look, I, what I’ll say about, you know, Sacramento and everything like that is, I’m their biggest man, you know, sincerely. Like I really want them to do well. I want them to get this right and I want them to write the ship because we’re all in this together. Yeah, I represent us. I really want the department and the commissioner and everything. I’m really rooting for them. And I’m also really rooting for the insurance carriers themselves and the insurance companies themselves that they get it right and get it together because we have to work together on this. But that’s like probably like 2% of my focus at the end of the day because I don’t have direct control or direct access to that. What I have direct control and direct access to is how I run Pacific Premiere. Yeah. That’s what I show up every day focused on. And I feel like I’m working my butt off right now, which is, which is good. That’s what I want to be doing. And I’d be remiss if I didn’t say, you know, my staff is totally working their butt off. Yeah. I’m so impressed with what they’re doing every day. They’re, they’re showing up in a really tough environment where people are really upset and don’t understand what’s happening. And they’re, they just are doing their job and they’re doing it with a smile on their face. We talked about the Ghostbusters before. Yeah. I know they’re doing it with them that they’re the Ghostbusters. They’re doing the dirty job that nobody wants to do. It’s Halloween right now. So it’s a timely, you know, conversation joke to have with them. But they’re doing the job that nobody wants to do. And I’m, they should be very proud of themselves. Got it. Got it. Okay. So you had mentioned at the beginning about dealing with a lot of drama as an insurance, you know, company owner, especially under these situations. Can you impact that a little bit? Because when I hear it, think of insurance, I don’t think drama generally. But what did you, what do you mean by that? Yeah, you think the insurance is like a like a tranquil, you know, lake, but it’s like that, that image of the ducks sitting on the tranquil lake underneath. There’s all this churning of legs and everything like that. Yeah. Right now, this is, this is a very dynamic market because there’s been that really, these really quick changes happening. There is a disagreement between, I think, carriers and reg, insurance companies and regulates where agencies about what the future looks like. And how we should be pricing insurance. So you know, part of that’s, you know, are you looking forward? It’s called prospective rating. Are you thinking about, you know, hey, we’re seeing this exponential curve in terms of weather events and losses because of these big fires? Or should we only be able to look backward retrospectively? So the reinsurance companies, for example, they don’t have to play by these rules. But nobody protecting the insurance companies pricing. They’re like, the consumers are protected, but insurance companies aren’t. Okay. So there’s no regulatory body overseeing them. Not protecting them. They’re big about insurance. Right. You know, we can, we don’t, we don’t have a soft spot for them. Sure. But those other reinsurance companies are all using prospective rating. They’re all looking out over the horizon line and saying, okay, this is what it’s going to look like because we can model this stuff. They’re all showing, okay, we need to raise rates significantly to make sure that we stay solvent. There’s so many big reinsurance companies in the world. Right. So they’re changing. They’re going that direction, whether we go or not, the insurance companies cannot do that without approval. And so they are, and that’s where the disagreement, a big part of the disagreement I think lies. There was just good news that they’ve come to some sort of, I guess, a compromise where insurance companies can potentially use some of the tools and the things that they want to use to make sure that they can rate out equitably for different scenarios. But there’s also kind of a, there’s a give and take to that where they have to take a lot of fire areas if they do that. Yeah. So it’ll be interesting to see how that plays out. And it will probably play out over a decent amount of time. You know, I’d say, you know, a few years before we, you know, really understand what the impacts that’ll be. Yeah. This is really interesting because traditionally a lot of this would just be like glazed over eyes or minutiae or like, you know, insurance, you know, 301, like an advanced back, see behind the scenes, insurance class. But I’m very interested. And I know a lot of people are very interested because we get very interested when our rates triple. You know what I mean? Then we start wanting to learn how things work and understand what’s going on. And so I’d like you to unpack a little bit more about the looking back and looking forward. And I think you had told me actually like a story about maybe one carrier or something where it seemed very reasonable where they needed to look forward, basically rate or price their insurance based on what they think’s going to happen this year. But they had to do it based on what happened last year. But what happened last year wasn’t indicative. Like tell me tell us more about how that works. Yeah. I’m not sure what what story exactly were referring to. But I mean, look, there’s some good examples of where this has happened before. I mean, Florida’s a really good example of a situation where we kind of we can kind of read the tea leaves a little bit. So they had they had a couple hurricanes in one year. We said, okay, without them, never happened again. That was a one off look back at the past that that hasn’t happened. The next year they had five hurricanes or something like that. It was it was the biggest loss in a year. So and overnight as a result of that, they have a similar state run insurance exchange. We have the California Fair Plan for fire risk in California. They have citizens in Florida, which is, you know, just swap out the word fire for wind and you basically are there with what they’re what their plans include. That became like 49% of the market as a point of reference. California might be more than this now, but last last out I heard was they went from one to one, the California Fair Plan went from one to two percent of the market. It’s not even close, but it’s still a problem. Yeah. Because California is a really big state. I think there’s something like 220 billion dollars in liabilities in the California Fair Plan. So, but I think, you know, we can we can also Florida has gotten it together a bit as well. So consumers are more savvy to this. Carriers are slowly entering. That’s why I say I think it’ll be a long time where we’re kind of recovering from some of this. But we can we can draw some good lessons on what what they did over there to kind of help us through navigate this as well. Got it. Okay. So, I’m not quite understanding. I’m pack a little bit more with insurance companies can only look back when they’re so they can say, okay, we’ve had these losses over the last five years. So this is our pricing this year. They want to start looking forward, but isn’t that kind of looking forward when you look back, you’re looking making a guess about the future. What’s the what am I missing here? How does that work? They’re just what they’re seeing is increasing these weather events that’s sort of kind of exponential. And so the one argument is you can only look back at what’s happened in the past and they’re saying, well, the past really isn’t that indicative of what’s going to happen going forward. That’s kind of the and that’s why I’m bringing up that Florida story was because they said that year was an anomaly. It could never it would not happen again. Got it. So many hurricanes that year that that was just a bad year. It happened the very next year. So we’re seeing changes, you know, systemic changes. And we’re trying to keep up with I mean, it doesn’t, you know, it’s you just look at look at the fires. The week we talk and this is where I get wonky a little bit. We talk about frequency, the number of times something happens. And severity, how bad is it when it happens? Both those things when you talk about fires is significant. It’s off the charts. Now as it was, you know, 20 years ago. Yeah, definitely. So yeah, I see a big increase in weather events. If you’re looking back historically, you’re not going to be prepared, but you need to kind of have an assessment. It’s like, okay, this is happening at a higher rate. We need to be able to forecast that projection happening potentially. Okay. That makes sense. So with all these events that happen, created a perfect storm for insurance, certain carriers just said, hey, you know, we disagree with kind of the insurance regulatory, regulatory agencies because of these other factors. We’re just, we can’t write. We’re not going to write in this state anymore. Any new policies. And that ended up hurting the consumer a lot. And not all of it was a regulatory agency’s fall. There was other factors, but it seems like a portion of it was maybe some things they need to work out with this looking back and looking forward. They’re talking, you know, they want everyone wants people to have fair insurance and enough competition. What, what’s happening like when someone gets an increase that is through the roof and they call you like, what’s a common conversation you’re having around insurance right now? Yeah, it’s a good question. When we try to do as much, lay the groundwork as much as possible up front. So we’re trying to let people know, hey, this is where the market is, expect certain increases to end. But the real challenge here too is that some people are very disrupted by what’s going on and some people are not disrupted at all. This is not happening evenly across the board. So depending, I mean, for example, if you’re in a high fire risk area, you might be way more impacted by some of this than than someone who’s not. So we’re seeing some people get more of the short end of the stick and we’re trying to take a really big book of business that we look at, you know, 120 days in advance of a renewal, for example. And we’re trying to really project out and predict what’s coming so that we can get in front of that and communicate to clients in advance. Lay that groundwork because it takes a little bit of the pressure out when it comes. And that’s most of what we can do now. If somebody has a big rate increase, we’re blessed. This is how our agency functions as we’re able to go out and look at other options because you’re a broker. Exactly. And we act in agent broker license or the same in the insurance program. We work with many different carriers as well, I’d say. So yeah, we work agnosticly. We’re trying to find the best deal for our clients at any given time from what’s available to us. And see, I will go out to market. So look, we’ll look at these things. But the problem to right now is that there’s just not a lot of, it’s a pretty frozen market. That’s where it’s a hard market. There’s not a lot of competition with carriers wanting to take risk. So, you know, sometimes people are having to eat those increases. That’s the market responding to, you know, inadequate, inadequate ratings and lack of competition. Yeah. And how does that work if a consumer comes to you, like, let’s say it’s a renewal and they’re not writing anymore. And the new policy is to 3X the cost. And they’re like, oh, you know, Eric, I like you, but I’m going to, you know, have to look around a little bit. Talk to another broker or something. What do you tell people and what’s like the behind the scenes look at that for the consumer? The behind the scenes for, oh, what were saying behind the scenes? Or like, like, they’re, I don’t know, like, how do you tell, how do you talk to them? Do you tell them, yeah, go ahead and go look or do you tell them like, you can look, but you’re not going to find anything because that party looked like, is there, do people find policies that maybe you don’t see or like, how does that work? I think it’s a, it’s a totally fair question. I think it’s the for them to ask, you know, I think what we try to do is show our work. So we have marketing results and that sort of thing. Well, we have a document that we’ll put together and show them. Okay, look, we use years, we approached, here’s what they said, you know, right now in this market, it could be this sheet that’s, you know, 30 carriers long. It just says decline to climb to climb to climb to climb to climb. And then a couple that are just, you know, they’re, they’re willing to quote, but it’s not going to be competitive. So, and that’s, you know, at least we’re showing our work in that instance, but it’s, it’s, it’s not, it doesn’t make it feel any better because you’re, you’re still stuck in the same position. I’m, I’m fine with, you know, if someone wants to go get, get all alternative quotes. I just, I just tell you, you know, like, interview your broker, find someone who you really like to work with, who you think, you know, understand your situation, your industry. That’s why I think niche, niches within insurance are so important. Yeah, sticking in your wheelhouse and really under it, because we know exactly what the markets are that are playing in these, in these, in these disciplines. Every once in a while, we get surprised, but I think, you know, that’s a great day too, because then we just learned something new that we didn’t know yesterday. And we were even tougher for the next time we go back at it. So, yeah, I think that’s all, that’s all they, they can do that if they want, you know, I caution anyone from wanting to become an insurance agent. Not like, not if you want to do that as a career, but if you’re like a property manager and you’re doing a really good job, like spending your time focusing on insurance is probably not the most productive use of your time. And if you’re a consumer that has homeowners insurance, again, just find someone who you trust that you think is going to do a good job for you. Ask good questions like you’re doing and, and I think that’s the best that you can do in this market. And be a good, be a good consumer with insurance companies too, because there’s something to be said for having a good track record with these companies when they’re going through this. Yeah. There are people, there are groups that might come in and buy the market knowing that, you know, they’re going to, to raise rates significantly in the future. And, you know, do you want to sacrifice a really good stable career for something that, you know, maybe here today gone tomorrow kind of thing? So, yeah, you got to weigh all those things, I think. It’s really challenging for consumers. So, I think trust your, trust your agent. Perfect. So, I’m trying to get in the head of one of our customers, one of our clients, even myself, when, you know, you get a big increase or something, you talk to your insurance agent, and you’re like, okay, well, maybe you have a good relationship like we do or, but maybe not, maybe it’s just like, you got it online and now you’re looking around. What’s the difference between like an eight, like a broker and an agency? Like, are there some carriers you can’t write because they’re exclusive to their agents and like, how does that work? There are. So, like, when I was a farmer’s agent, that’s a captive insurance company. So, I was mainly focused on writing farmers’ insurance only. And like, why is like other brokers didn’t have access to those companies. So, there are those, there are a handful of those companies out there. We work with, you know, somewhere in the neighborhood of, you know, 400,000 companies, you know, it’s like, it’s like a lot of, depending on how you, depending on how you quantify, it’s a lot of different insurance companies that we work with. I think that’s a big advantage to working with someone like us. Yeah, like, oh, agent and broker, I’m sorry, thank you. Yeah, agent broker. So, it’s, I was going to just mention because you’re in real estate. So, real estate’s have agent broker license too. They’re different licenses and they, they imply different things. On the insurance side, when you get an agent and broker license, it’s the same license. So, everybody gets that license. What agent and broker really means is the capacity that I’m going to the carriers with. So, if I have a direct relationship with say, travelers, for example, I’m an agent of travelers, even though I, you know, you can call me a broker, you can call me an agent. It doesn’t matter. Yeah. It doesn’t matter. When I work through a whole sailor with a company that maybe doesn’t do direct appointments with agents, or they’re, they’re, they’re not admitted to do business in the state of California, which is something we should probably talk about admitted versus non-imitted. That, in that case, I’m working as a broker because I’m working with a middle person in between us. Got it. Yeah, what is, let’s unpack that admitted versus unadmitted. Why should we care about that? That’s something that I think, so those, for those consumers that are going to be disrupted by this market, I think that’s going to be something that you, they become more familiar with. So, admitted means that they, that they are going through the compliance of those regulatory agencies in California. The, the interesting thing that’s happening now is we’re seeing more and more circumventing of California in general. They might just produce a product that is a non-imitted product, meaning it doesn’t go through those bodies at all. And there’s some just important things that consumers would want to consider when, when, we write, we write non-imitted policies for people all the time if that’s the best option for them. But they, we just need to be very disciplined about looking at, at certain provisions in the policy, because it’s more of a, it’s more like the wild west. Got it. So you could have a claim and it’s, and, because that’s the thing, people just look at the price with insurance, but those of us who’ve actually been through a claim, that’s when you actually start to care about the insurance company. And so what you’re basically saying, it sounds like is an unadmitted carrier hasn’t gone through that regulatory screening. So, you know, really know what you might get. But in some cases, that policy might make sense because they have a good reputation elsewhere and, you know, it’s a best option. In some cases, that’s all that’s available. That’s all that’s available. So we really want to, you know, that makes the most sense. But yeah, you want to, you want to really, the devils and the details. There’s a lot less consumer protections. And so I think that there will be, there will be more of a tier point. I think the average consumer looks at two lines. They look at the price and they look at the deductible, at least in my experience. That’s what their people are focused on. And there’s a whole, you know, I would, I like to try to focus people on a, one of a few more important details that, sure, that we need to, we need a factor into the decision. What’s up with HOA insurance? That was kind of like the tip of the iceberg, I think, with news. I remember one of our clients. I forget who it was. I apologize. But he actually tipped me off to it. He’s like, hey, you should look into this where we have this HOA and we can’t even get insurance. And I was like, what? And I looked it up. Anyway, what’s, what happened with that and where we at today? Yeah. So I have a quick story on that too. We got called in by a friend who was, who’s a lawyer who’s in an HOA and they, they, they say, look, you know, Eric, we’re really in a dire place here. Our, our HOA, we have 300 or so units. It was $130,000 last year. The renewal came back at $2.5 million this year. And that wasn’t even for like the amount of insurance. I was for about a third of what they needed to actually cover the homeowners association. So, and, you know, if a terrible situation to be in, we, we didn’t, we went to a couple of their association meetings. We talked to them about, hey, you know, I think this is, this is what you should be thinking about. And that’s sort of thing. The reason why homeowners associations are in such a challenging position is back to a capacity question that we talked about. So in that case, we needed $130 million worth of coverage to cover the master policy. So not the individual condos themselves with the whole common area. And right now it’s really tough to get up to, you know, higher, higher limits. That middle market of insurance, middle market of, for real estate is really challenging. We might, we might only get, you know, up to 20 million for the base layer of insurance. And we have to keep stacking insurance carriers and layering insurance carriers on top of that. It looks like this is really wonky, but it looks like a quilt when you look at these things on paper for how wholesalers are piecing together insurance contracts to try to cover these, to try to get to the coverage amounts that they need. And the pricing for each one of these layers is absurd right now. Got it. So we have a joke right now that in the industry, like the one comma club, because some of these carriers are only offering one comma worth of coverage, you know, or we’re going to have an even we haven’t even broken a million yet. And we’re trying to piece up to 130 million. It’s going to take a while. Wow. So that’s a quilt of different insurance policies, sometimes potentially. And why did, like, why did they get hit hard? Is it mainly because they’re in fire risk or did some HOAs just see those increases and they’re just in a normal street with not a high fire risk? They were in a high fire risk area. Okay. Their carrier was decided to non-verno. And so that that was then the next option that that agent had brought to the table. What we did in that case when we came in, we really didn’t do do much the Homer association and that attorney did all the the work. We just were there to kind of explain what we’re explaining right now. Kind of go over the realities of the market and why it is the way it is. But what they did was they changed the CCNRs. They changed the CCNRs to say, hey, now you do have an insurable interest on the building itself. And they were able to do that because the HWA was structured in such a way that it actually lent itself pretty well to do that. And so that made it so that the Homeowners Association policy went from a, you know, I needed 130 million of coverage to not needing much at all. And all the individual unit owners were then able to go get the coverage for those units, which isn’t as difficult because I can get, you can get to a million dollars in coverage really easy. It’s hard to get to 130 million in some instances. Got it. So you push that or they push that kind of on their individual homeowners, but it didn’t hurt them as badly as it would have hurt them collectively as an HWA. By breaking things up, it alleviated the capacity issue that we were running into, which I know doesn’t make any sense like why would that be? Isn’t it going to Costco cheaper than going to, you know, buying things individually, not in this instance? Okay. It’s not. Well, that’s huge because that could bankrupt people that collectively own in HOAs. And I’m glad that that someone came up with it sounds like an attorney maybe like figured out how to figure do that. Yeah, it was a good, it was a good, it was a good solution for them in this instance. And it got them, it got them off of life support because you’re right. It would have bankrupt the HOA or they, you know, there was a lot of voicing of, well, why did they even buy this $2.5 million policy? Well, if they didn’t, then you don’t have insurance and then a bank can’t lend on your condo and then you can’t sell your condo unless it’s a cash buyer. Yes. So it was a significant concern for, and you know, I mean, a lot of these people were fixed income. This was their, this was their biggest investment of their, their life, you know, they have a million, a million dollar condo or something like that. And, you know, what’s that worth if they don’t have insurance on the homeowner’s association? So yeah, it was a really interesting case to be a part of. And that’s the reason why it’s, you know, it’s so challenging, just because trying to get to those, those dollar limits. Again, why some people will be more disrupted than others in this market is if you’re below, if your reconstruction is below a certain dollar amount, I can get coverage pretty easily for what’s that dollar amount? It depends. It depends on the area. It depends on what we’re talking about. Yeah. But if you’re trying to get higher limits on certain things, it can be really challenging. Okay. Even on the casualty side, now it’s, it’s, it’s, it’s begun to affect there as well. You know, maybe somebody had a 50 million dollar umbrella previously. And right now, the most that’s willing to be offered is 20 million. So we have to go back and say, look, you know, 20 million costs as much as 50 million. And by the way, I can’t, you know, it’s really hard to get to 50 million. We can get there. But are you going to want to take it at this, at this kind of pricing pool? Well, that’s some great information. Before we get, get you out of here, what are just some general practical tips for some of our clients like they on maybe one house or maybe a small apartment building as far as coverage and just things to look for? What can you advise them on generally? Yeah. So I think the lowest hanging fruit in this way is most people should not want to become an insurance agent in this market. If you want to, if you want to career an insurance, though, I’d love to talk with you. We really want good people in the industry. And I’m, when we’re hiring people, but for the most general public that’s not trying to become an insurance agent, interview an agency that understands what your what your what your issues are. And then, and then work with them. You only need one quarterback. You don’t need to have 10 different quarterbacks to call the shots on this. It doesn’t help to have 10 different brokers involved. Just find one that you really trust. We can go to different markets and find, you know, good salute, good price competitive solutions for you. So I would just emphasize that. Like, you know, don’t try to, you know, it’s this is really complicated stuff. I’ve done this for 15 years and I’m still learning every day. And within that, then I think what’s going to happen, people are going to become more prudent about when they’re filing claims and why they’re going to they’re going to sus out some more details. And I think that’s a good conversation to have with your insurance agent. We never tell people you can’t file a claim or you shouldn’t file a claim. That’s always available if they have a loss. But we might want to do some math on it. We might want to look into thinking, you know, what are the consequences of these different things? Claims filing, you know, like we had mentioned, the admitted verse not admitted for the people who are really affected, I think that that’s going to become more of a conversation. So talking with someone who really understands the ins and outs of these different contracts so that you know, it’s kind of a efficiency thing. We can go through and point out what you might want to be cognizant of. I think that’s very helpful too. They are just working with working with a knowledgeable agent and being a little bit more appreciative. If you have a long-term relationship established with an insurance company, that’s something you might want to hold on to right now. Yeah. Relationships are huge. You think there’s just an abundant supply of insurance options. Generally, that might have been true in the past, but what I really appreciate in working with you and your company is that you do both the business and the personal and everything’s in one umbrella and I have one relationship and when we hit tumultuous times like this, like just like last year, if you didn’t have it this year, begin earlier this year with all those storms, if you didn’t have a relationship with a rougher, you didn’t get your roof fixed. And so now is a more important time than ever to have a good relationship with someone and you know, they’re going to be able to save you time. They’re going to be able to help hunt down these, you know, better deals and sometimes just explain to you why things are the way they are. So, you know, we use Eric. I encourage you to check him out. How do people find you if they’d like to get in touch with you? Emails the best thing right now because our phones are burning up and it’s that can be hard to get me on the phone, but yeah, my emails Eric at Puckner.com, I’m sure we can link that up somehow or whatever you do. Definitely. Yeah, we’ll put your website in your email. I’ve seen you have good production value on the account, something like that. I’ll figure that out. Yeah, thanks, John. I’m the same. Yeah, and we are phone number two. I mean, you can try to reach out to us by phone, but I think we prefer email right now. Okay, perfect. Well, we’ll link the website, we’ll link your contact information. We appreciate you coming in and thanks for all the info Eric. Thanks for having me. Yeah, appreciate it.