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The auto insurance market in California is in distress. Over the last year, several large insurance companies, such as GEICO, Allstate, and most surprisingly, Liberty Mutual have pulled out of California’s auto insurance market.
The conditions in the state have led the insurers to believe that California drivers are too expensive to insure. Auto accidents increased 25% between 2020 and 2021, where at the time, premiums increased only 4.5%. The insurers were paying more in claims than they were making in premiums.
In addition, there has been a significant increase in the cost of repairing automobiles. With inflation and supply chain issues impacting the cost of parts, the cost of auto repairs has risen. The advanced computer technology within the vehicle is causing carriers to struggle with the payouts.
According to the insurance companies, due to the significant increase in both the number and cost of auto accidents, the premiums that they are collecting to pay these claims are inadequate to also allow the companies to make a profit.
California Insurance Regulations
Insurance companies are regulated by each individual state. To maintain their status as admitted companies in the state, they must have their rates, and any subsequent rate increases, approved by these state regulators.
Much of the current problem in California can be traced back to the pandemic. In order to protect the insured, the California Insurance Commissioner froze rates during the pandemic and has not yet increased the rates to adequate levels. Although the Department of Insurance feels they are protecting California drivers by helping them obtain the most value from their premiums, in reality it is making the problem worse.
Auto insurance is considered a statutory coverage, meaning you are required by law to have it, otherwise you will be penalized. Business owners per the California Insurance Code §11580.1b for Commercial, Fleet, and personal insurance, have to have a minimum liability insurance requirement of:
- $15,000 for injury/death to one person
- $30,000 for injury/death to more than one person
- $5,000 for damage to property
Non-Admitted Market Coverage
This situation is not only hurting personal auto insurance policies, but it is also causing tremendous issues on the commercial auto insurance side as well.
As of now, it is still possible to obtain auto insurance in California, but business owners are finding it challenging. Unfortunately, Brokers must go to non-admitted markets to obtain coverage for their clients. The positive is that the non-admitted carriers will insure business owners. However, since these carriers are not regulated by the state, they can charge significantly higher premiums, provide inferior coverage, and the insured must pay an additional sales tax on their non-admitted policies. This is leaving business owners struggling to obtain any auto coverage, as many cannot afford the increased premiums.
In addition, one very dangerous side effect of this situation is that business owners are dropping their limits down to these minimum required limits to help reduce their premiums. Instead of purchasing adequate limits for their company, this leaves a potentially devastating gap between the insurance proceeds available to pay a claim.
If you are struggling to obtain auto coverage in California, contact TSIB today and speak with one of our knowledgeable Risk Advisors on the best thing to do for your business.
TSIB’s Risk Consultants are currently servicing the following locations:
East Coast: New York City, NY; Bergen County, NJ; Fairfield County, CT; Philadelphia, PA
Texas: Austin, San Antonio, Houston, Dallas
California: Orange County, Los Angeles County, Riverside County, San Bernardino County, San Diego County
