SACRAMENTO, California: As insurance premiums in California skyrocket, landlords are increasingly passing these costs onto tenants, potentially exacerbating the state’s housing crisis.
The sharp rise in insurance rates is primarily due to increased wildfire risks and the soaring costs of replacing damaged properties. This affects single-family homeowners and landlords of multi-unit properties, who are now forced to find new insurers or turn to the more expensive FAIR Plan, California’s insurer of last resort.
Experts warn that these rising insurance costs could significantly impact California’s rental market, where nearly half of the population rents their homes.
Josh Hoover, an insurance broker in Los Angeles, noted that securing coverage for large buildings has become “almost impossible” due to insurance companies’ stringent requirements.
“Even buildings made in the ’80s are now considered old, which is ridiculous,” Hoover said. “Most carriers want everything updated in the last 30 years. They want a new roof, electrical redone, plumbing redone – they want you to have copper pipes.”
Landlords facing steep premium increases may have no choice but to raise rents despite existing state laws that limit how much rents can be increased annually.
For smaller landlords, the situation is equally dire. Uwe Karbenk, co-owner of a 33-unit apartment building in San Bernardino, saw his insurance premium jump by $28,000 after Farmers canceled his policy.
With state rent control measures in place, Karbenk and others like him feel squeezed by the combined pressures of rising costs and limited ability to increase rents, leading some to consider exiting the real estate market entirely.
Shanti Singh, legislative director for Tenants Together, expressed concern about the potential for rent hikes to disproportionately affect tenants, especially as the impact of climate change intensifies. Singh highlighted that renters are often the least protected in such scenarios, as they are more likely to bear the financial brunt of rising costs without the ability to influence the underlying factors.
“Tenants are going to have the least recourse,” Singh said. They “always bear a disproportionate brunt of what they can afford.”
The ongoing threat of wildfires further complicates the situation, pushing more properties into high-risk categories and making them even more challenging to insure. This has raised alarms about the long-term viability of living in some California regions, where insurance and housing may become unaffordable or unavailable.
Small businesses that rent commercial spaces are also feeling the pinch, as landlords like John Reed in Oakhurst are forced to pass on their increased insurance costs to tenants. Reed, whose fire insurance costs nearly quintupled after his policy was canceled, said he is trying to mitigate the impact on his tenants by spreading the increases over time.
California’s Insurance Commissioner Ricardo Lara has introduced reforms to address these insurance challenges. Still, the immediate future remains uncertain for many as they navigate the dual pressures of rising costs and regulatory constraints.
Department spokesperson Michael Soller pointed out that Lara recently announced a deal with the FAIR Plan that creates a high-value commercial coverage option.
“The reforms will have broad benefits for the availability of insurance,” Soller said.
