Despite rate hikes, study finds California home insurance costs are middle of the pack nationwide

Ethan Varian, Bay Area News GroupSan Jose Mercury News

Even as devastating wildfires drive up home insurance costs across California, premiums overall remain relatively low compared to many other states, a new UC Berkeley report finds. But that could change as state regulators phase in new reforms allowing insurers to set rates based on the growing threat of climate change.

In 2023, California’s median home insurance cost of about $1,200 a year ranked in the middle among all states, according to an analysis of U.S. Census Bureau data by UC Berkeley’s Terner Center for Housing Innovation. Current data from personal finance sites show a similar comparison.

The states with the most expensive insurance are prone to hurricanes or tornadoes, including Florida ($1,887 a year), Louisiana ($1,793), Oklahoma ($1,793), Colorado ($1,769), and Texas ($1,769).

The report found that in California, homeowners typically spend about 1% of their income on home insurance. But households in the bottom quartile — those earning less than $66,000 a year — pay around 3% of their income on average.

“It may surprise people that as recently as a couple of years ago, California’s median home insurance costs ranked in the middle of states across the country,” Zack Subin, co-author of the analysis, said in a statement. “But low-income homeowners already spend more of their income on insurance, and we expect that as costs increase, this affordability challenge will grow. Policymakers need to engage in planning to adapt the state’s housing stock to climate change impacts and develop strategies that protect vulnerable homeowners from being displaced.”

In recent years, homeowners across the state have been hit with double-digit rate increases as insurance companies have scaled back coverage, in some cases refusing to write new policies anywhere in California. Providers said the state’s insurance regulations had kept rates artificially low, making it untenable to take on new customers amid more destructive fire seasons and rising construction costs.

To entice insurers back to the state, regulators adopted a plan that allows providers to justify rate increases using models that account for climate risk. Until approving the reforms late last year, California had been the only state in the nation that prevented such models. Experts expect the changes to raise premiums across the state.

In exchange, insurance companies are expected to write more polices in fire-prone parts areas, where they’ve ended coverage for hundreds of thousands of homeowners over the past decade. The goal is to help get property owners off the FAIR Plan, the state’s expensive high-risk insurance program, which has nearly doubled in size over the past two years to roughly 625,000 homeowner policies.

Even as some major insurers have made commitments to expand coverage, some consumer advocates warn the reforms will lead to steep rate hikes and are deeply skeptical that insurers will actually write more policies in fire-risk communities.

The new report also found that about 16% of California homeowners without a mortgage were uninsured in 2023. Mortgage lenders generally require homeowners to have insurance, meaning that the vast majority of those with a home loan are covered. Nationwide, 21% of homeowners who owned their homes outright were uninsured.

Many rural parts of the state, often with less wealth, had relatively high rates of uninsured homeowners. That included fire-risk areas, such as the Sierra foothills, where uninsured rates were around 20% or higher. In the Bay Area, uninsured rates ranged from about 10% to 20%.