USAA Leaders Discuss Increasing Insurance Costs in California

Insurance costs are on the rise in California, and recent wildfires in Los Angeles have only added to the challenges facing residents and insurers. USAA’s outgoing CEO, Wayne Peacock, and incoming CEO, Juan Andrade, recently discussed this issue in an interview with CNBC. They highlighted several factors contributing to the escalating insurance costs in the state, such as expensive real estate, inflation, and increased risks from extreme weather events like wildfires.

Peacock noted that aligning these factors with suitable insurance rates has become a significant challenge in California. To address these challenges, reinsurance plays a crucial role in stabilizing the insurance market. Andrade emphasized that companies must charge adequate rates to cover the exposure they face due to climate risks and inflation.

In response to overwhelming demand, the California FAIR Plan, the state’s insurer of last resort, has seen a significant increase in exposure for residential properties. The state’s Department of Insurance has introduced new regulations to encourage private insurers to write policies in fire-prone areas. These regulations require insurers to cover at least 85% of their market share across the state, including high-risk zones, and allow them to account for the rising cost of reinsurance in their pricing.

While these changes aim to address the crisis, criticisms have been raised. Consumer Watchdog, an advocacy group, warns that homeowners could see rate hikes of 40% to 50% under the new regulations. Despite these concerns, the CEOs stressed the importance of addressing the regulatory environment to create a healthier insurance market in California.

The discussion also highlighted the challenges facing the FAIR Plan and the potential impact on insurers operating in the state if the situation remains unsustainable. By addressing these issues and working to create a more stable regulatory environment, insurers hope to create a more viable insurance market in California.