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HOA Insurance Issues – How We Got Here and What’s Ahead

Written by: Ronni Maestas

Jul | 10

Insurance building blocks

Part 3 of 3: California HOA Insurance Issues

Insurance carriers throughout California are non-renewing homeowner association insurance policies. As a result, premiums and deductibles for available policies are increasing exponentially and the level of coverage offered is decreasing. In the final part of a three-part monthly series, we discuss how we got here and what some experts see on the horizon.

Throughout California, associations have watched their insurance premiums increase exponentially and, in many cases, have had their policies outright non-renewed. We know this is happening, but how many know WHY? We consulted insurance industry experts to get an answer to this question and asked them to look into their crystal balls to see what might be ahead.


Why Costs Have Increased

While this may be an overly simplistic analysis, we are experiencing a perfect storm in California: increased worldwide insurance payouts combined with increased costs, exacerbated by thirty years of under-collected premiums. While your own association may not have filed large claims with your insurance company, that doesn’t mean insurers haven’t been writing very large checks of late.

Increased Payouts

  • Worldwide disasters: Hurricanes, earthquakes, and other natural disasters throughout the world may not impact Californians directly, but the pool of money individual insurers use to cover these claims is the same pool they access to pay your claims. In 2022 alone, the US was hit by two multi-billion dollar hurricanes – Ian ($74 billion in September) and Nicole ($1.6 billion in November).
  • California wildfires: The California Department of Fish and Wildlife reports that ten of the costliest wildfires in California history have occurred since 2015. The 2018 Camp Fire (Paradise) was the most expensive, and destructive, with $16.5 billion in damages.
  • Litigious society: According to industry experts, the number and cost of director and officer claims, umbrella payouts, and frivolous claims have increased dramatically over the past several years.

Increased Costs

  • Inflation: Over the past three years, the rate of inflation has been higher than many experts anticipated, and remains high.
  • Increased construction costs: Construction costs in particular have increased dramatically. Since 2020, 82% of construction materials have increased in cost significantly, with overall material costs increasing 37.7% (per the Associated Builders and Contractors).
  • Aging buildings: many older buildings have outdated – and in some cases dangerous – materials and conditions. The cost of repair and replacement of these items can be significant. Galvanized plumbing and unsafe electrical panels are among the most expensive components to bring up to date.
  • Vehicle repair costs: Gone are the days of handling many car repairs on your own. With the proliferation of microchips and electronics (as well as electric and hybrid vehicles), even the simplest car repair requires a mechanic with specialized training and advanced equipment at higher costs. Increased claims and payouts are the result.

Under Collected Premiums

In California, insurance companies are either “admitted” or “non-admitted” carriers. Admitted carriers are licensed by the state to do business in California, and the California Department of Insurance (CDI) regulates the carrier’s policy forms, claims handling procedures, rates, and more. Admitted carriers must have their rates approved by the state and cannot change them without going through the CDI application and approval process. Non-admitted carriers (or “surplus lines” insurance companies) are allowed to conduct business in California and must meet strict standards established by the California Insurance Code. However, non-admitted carriers are not required to file their rates with the CDI, allowing for more flexibility in terms of coverage and pricing.

This rate approval process was established in 1988 with the passage of Proposition 103. Prop 103 was intended to protect consumers from arbitrary rates and practices, and established the “prior approval” system for implementation of rates. Annual rate increases are capped at 7%. In order to receive an increase greater than 7%, there is a complicated and time-consuming hearing process, sometimes taking up to 18 months to receive approval. Justifying a larger increase can be difficult, as it is nearly impossible to foresee cost increases and losses two years in advance. Most insurers request 5-6% rate increases to avoid the time delay and “hoop jumping,” and as a result, many have underfunded reserves due to thirty years of under-collected premiums.

Bringing it Together

The combination of increased payouts, increased costs, and depleted reserves has created an environment where insurers are unable or unwilling to renew or offer policies in California.


Look to the Future

Surplus Lines

While not ideal, surplus lines (or non-admitted carriers) are the primary alternatives available to associations in the current insurance situation. Associations may be able to remain insured, with full coverage and consistent with lending requirements, enabling owners to continue to sell or refinance their property.


Last fall, the Governor issued an executive order tasking the Insurance Commissioner with “fixing home and fire insurance availability and affordability.” One proposal would require the CDI to process rate increase requests more quickly. Another would allow insurers to use “catastrophe modeling” when setting their rates – using future risk assessments combined with historical data to set premiums (see Cal Matters). Additional options and proposed regulations are promised before the end of the year, so stay tuned.

Carriers Re-entering the Market

With the reduced number of carriers writing policies in California, some insurers may be seeing a wide open market and opportunity. According to one broker, Farmers Insurance will begin issuing new association policies starting August 1, 2024. In April, Allstate stated that it would resume selling new policies in California if regulators adopted proposed regulatory changes making it easier for insurers to raise rates (see


There is no simple answer to this complex issue. Contact your insurance broker or attorney to discuss solutions for your association and your specific situation.


Read part one of this series: Your Association’s Insurance Policy is Cancelled – Now What?

Read part two of this series: Insurance Options to Consider


*This information is not intended to be a comprehensive summation of the current insurance issues. Insurance is a complicated industry with innumerable factors impacting policies, pricing, coverage. The purpose of this discussion is to provide readers with a basic primer of a very complex issue. Consult an insurance broker who specializes in homeowner association coverage for more specific information and guidance.