Cautious Optimism for 2025: Part II

The scale of the devastating California fires have, of course, somewhat dampened the “Cautious Optimism for 2025” that we expressed in our recent memo about the Ultra-High-Net-Worth (“UHNW”) Personal Property & Casualty insurance market. We felt it would be helpful to provide this update on the anticipated impact of the LA fires. Click here if you would like to see a copy of our prior memo.

Needless to say, CA policyholders will be most affected, and dramatically so. When a state’s insurance market becomes distressed, state-backed programs are inundated with new policyholders as exposure is shed by insurers attempting to remain sustainable. We saw this happen in Florida over the past few years. The difference, however, is that CA has not been allowing insurers to take the necessary rate and/or amend policy terms and conditions. Many insurers had already pulled out of CA or significantly limited their coverage. This trend will be accelerating after CA’s mandated one-year moratorium on non-renewals.

Since CA’s “last resort” FAIR plan does not have sufficient resources to pay the new claims, we expect CA will require private insurers to pick up the remainder of the costs, and potentially pass assessments onto CA policyholders. This will exacerbate rate increases and further reduce capacity. Regardless of whether you have a home affected by these fires or in another high wildfire zone, rates throughout CA will increase aggressively for the foreseeable future. Sadly, this is the best-case scenario, since we also anticipate many non-renewals after CA’s one-year moratorium.

For policyholders not in CA, there is systemic risk involved with an event of this magnitude. Many insurance companies purchase reinsurance on a national treaty basis. To remain profitable, the primary insurers will pass off the increased cost of the reinsurance, which will ultimately impact premiums nationwide. Many reinsurers will also ask for higher attachment points for catastrophic property risk. Thus, in addition to increased premiums to the consumer, higher attachment points will likely require policyholders to retain more catastrophic risk. Similar to high wind deductibles in FL, we could see an increasing number of separate wildfire deductibles and/or a sublimit on catastrophic losses.

A few takeaways:
(1) Now, more than ever, it is important to review your coverages and ensure your limits are adequate and ownership entities (trusts, LLC’s, etc.) are listed appropriately.
(2) Call us before you submit any claim; our Senior Claims Advocate Jayme Walder has been providing exceptional value-add.
(3) In this tightening market, we usually start the renewal process two to three months prior to your policy anniversary (even though insurers typically release their renewal offers only one month before the anniversary). For new clients, please give us as much time as you can, since the market is under much stress right now.
(4) Multiple brokers shopping on your behalf can “freeze” both the UHNW primary and reinsurance markets, which are relatively small; this often results in higher premiums and/or less coverage. Choose one broker you trust to shop the market for you—hopefully Concierge! We thank you for that trust, and as you know, we take this responsibility very, very seriously.