Commercial Building Insurance In California: A Breakdown

Unfortunately for business owners, California has one of the worst commercial insurance markets in the United States. Policy premiums are increasing at a rapid rate, policies are being non-renewed, and more properties are moving over to the California FAIR Plan than ever before. Carriers such as State Farm, Liberty Mutual, Chubb, Farmers, Nationwide, The Hartford, and many more have limited their business in the state, causing a shortage of insurance capacity and rates to skyrocket. It can be challenging if you’re shopping for commercial building insurance in California, but that doesn’t mean it’s impossible to get the coverage you need. Here’s what you need to know about the insurance market in the Golden State.

5 Reasons Insurance Companies Are Pulling Out Of California

A combination of several factors has caused insurance companies to lose money and decide to leave the state. That being said, the top five reasons include:

1. Wildfire Risk

Anyone who has watched the news has seen the intense wildfires raging across California. The state has experienced some of the largest and most destructive wildfires on record in recent years, and this trend is expected to continue due to factors like climate change and urban development near fire-prone areas. Wildfires cause billions of dollars in claims that insurers are unable to continue covering, without significantly increasing premiums.

2. Regulatory Environment

The regulatory environment in California, particularly Proposition 103, restricts the ability of insurance companies to quickly and adequately adjust their rates. Insurers must get approval from the California Department of Insurance for rate increases over a certain percentage, and the process can be lengthy and complex. The result is insurers are struggling to keep pace with the increasing risk and costs associated with natural disasters.

3. Reinsurance Costs

Reinsurance is insurance for insurance companies, allowing them to manage risk by ensuring they can cover large-scale losses. As the risk of natural disasters in California rises, reinsurance becomes more expensive, driving up costs for insurers. These increased costs are making it financially untenable for insurers to continue offering commercial building insurance in California’s high-risk areas.

4. Building Costs (Inflation)

The cost of construction and building materials has risen, often outpacing inflation. This means if a home is destroyed or damaged, the cost to rebuild it is significantly higher than in the past. Insurers must adjust their premiums to account for these steep prices, but regulatory restrictions can make this difficult. Some insurers are being forced to withdraw from the market rather than face unsustainable financial losses.

5. Other Natural Disasters

Aside from wildfires, California is also prone to other natural disasters such as earthquakes, floods, and mudslides. The frequency and severity of these events has increased, which compounds the risk insurers have to account for. The additional financial strain from paying an increased number of claims has buckled some insurance companies.

What This Means For California Property Owners

When it becomes financially untenable for insurers to continue offering commercial building insurance in California, property owners are faced with several consequences:

• More Non-Renewals: With insurers re-evaluating their portfolios and pulling back from the state, it’s more likely that insurance policies won’t be renewed, especially for businesses in high-risk zones like wildfire-prone areas.
• Higher Rates: Policyholders who are renewed can expect higher premiums. Insurance companies that continue to offer policies will likely need to raise rates to cover the increased risk of catastrophic events.
• Fewer Insurance Options: With major carriers pulling out or restricting their offerings, it will be challenging for property owners to find providers that offer commercial building insurance in California. This is particularly true for new buyers or those with properties in high-risk areas.
• More Transitions From Admitted to Surplus Insurers: With the standard market insurers (admitted carriers) retreating, property owners might have to turn to surplus lines insurers, which are not subject to the same rate and form regulations as admitted carriers. This could lead to less regulated, potentially more costly insurance options.

Why It’s Not As Bad As It Might Seem

Don’t lose hope if you have business property in California—there are some bright spots in the insurance market. Keep in mind that:

Insurance rates in California are still cheaper than in many areas of the country.

Despite the rate increases, California's insurance premiums are still relatively lower than in many other parts of the United States. The current changes may reflect a market correction rather than an outlier spike in costs.

There is still insurance capacity with surplus insurers.

The surplus lines market is robust and capable of providing coverage where the standard market cannot or will not. Surplus insurers might offer more flexible policies that can be tailored to your individual needs.

The issues will eventually work themselves out in a couple of years.

The insurance market is cyclical, and the current challenges are likely to stabilize as insurers adjust to the new risk environment and regulatory changes take place. Market corrections, along with efforts to mitigate risks, such as improved fire safety measures, may restore balance.

Key Coverages For Commercial Building Insurance In California

As your commercial insurance policies change and the market fluctuates, consider the following coverages to protect your property:

• Primary Property Insurance: This essential coverage protects against many common risks, including fire, theft, and some weather-related damages. It's the core of any property insurance program.
• Ordinance & Law: This coverage can be crucial if you own an older property or if local building codes have changed since your property was built. It covers the cost of bringing your property up to current codes during repairs.
• Business Income: Also known as business interruption insurance, this covers lost income and expenses if your business operations are disrupted due to a covered loss, like a fire.
• Flood: Standard property policies typically exclude flood damage, so separate flood insurance is necessary, especially if your property is in a flood-prone area.
• Earthquake: Like flood insurance, earthquake coverage is not typically included in standard policies and must be purchased separately, which is particularly relevant in California due to its seismic activity.
• Commercial Package Policy (CPP): One of the most popular coverages in the U.S., a CPP combines commercial general liability and commercial property insurance into one policy. Merging the two in this way lowers costs, broadens coverage, and simplifies the buying process—it’s beneficial to both insurers and policyholders.

Our Solution

LandesBlosch has multiple insurance companies that are open for business in California, insuring even the high-risk areas. Our panel of A-rated carriers can write most commercial buildings, from strip centers to apartment buildings.

Contact us to check prices and get a quote on commercial building insurance in California. Buildings insured for under $5 million can generally be quoted on the same business day, and larger structures can be quoted within a week.