After years of rising premiums and difficult renewals, we’re beginning to see an encouraging trend for some California communities.

Our office has been noticing an interesting trend recently that we don’t see being discussed very often.

For the first time in a very long time, we’re starting to see signs of the reinsurance market softening.

What does that mean in plain English?

We’re starting to see premiums drop.

After years of significant increases, difficult renewals, and limited insurance options for many California communities, that’s certainly something worth talking about.

First Things First: What Is Reinsurance?

Let’s define the term.

In the simplest terms, reinsurance is insurance for insurance companies.

Insurance carriers use reinsurance to back themselves up when they’re taking on a risk that’s larger than they’re comfortable handling entirely on their own.

Here’s an example.

Let’s say an insurance carrier has the opportunity to insure a very large community with a total insured value of $100 million.

The carrier likes the account, but it’s only comfortable being responsible for $50 million of that risk.

Instead of passing up a potentially great client, the insurance carrier can spread the risk by purchasing reinsurance for the remaining $50 million.

If a major covered loss occurs, the primary insurance carrier would be responsible for its portion of the claim, while the reinsurance company would respond for its share according to the reinsurance agreement.

The important takeaway is that reinsurance allows insurance carriers to take on risks that might otherwise be too large for them to handle alone.

This method worked fantastically for the insurance industry for years…until it didn’t.

So, What Happened?

Over time, reinsurance companies became much more cautious about the risks they were willing to take.

And when they were willing to take those risks, they started charging considerably more for accounts they considered high-risk.

In California, the insurance nightmare we’ve found ourselves in started in earnest following the Santa Rosa fires. In the years since, we’ve seen insurance costs increase across the board.

Some communities were hit particularly hard, especially those with:

• Significant claims activity
• Properties located near high brush zones
• Increased wildfire exposure
• Large property values
• Other characteristics carriers considered difficult to insure

As insurance and reinsurance carriers became more selective, many of these communities found themselves with fewer options.

From the Admitted Market to Excess & Surplus

One of the biggest changes we’ve seen has been communities moving from the Admitted Market into the Excess & Surplus (E&S) Market.

For many associations, that meant substantially higher premiums and a very different insurance environment than they had been accustomed to.

Communities that had previously been relatively straightforward to insure suddenly faced limited carrier options, stricter underwriting requirements, and significant premium increases.

For years, the direction seemed to be the same: Up.

Premiums went up. Underwriting became more restrictive. And finding coverage for communities with wildfire exposure or claims history became increasingly difficult.

But now we’re starting to see something different.

We’re Beginning to See Premiums Come Down

Interestingly, it’s some of those harder-to-insure communities where we’re beginning to notice signs of a softening market.

Communities with previous claims or properties located in wildfire-prone areas are starting to see premium decreases at renewal.

That’s significant.

After years of telling associations to prepare for another increase, we’re finally seeing some renewals move in the opposite direction.

Now, let’s keep this in perspective.

We’re not talking about premiums suddenly dropping back to the old days of Admitted Market pricing.

And realistically, they may never return to those levels.

These policies are still more expensive than they were years ago.

But premiums are starting to go down.

And after what California community associations have experienced over the past several years, that’s a welcome change.

Why Does Reinsurance Matter to Your HOA?

You may never purchase a reinsurance policy yourself, but what happens in the reinsurance market can ultimately affect what your association pays for insurance.

If reinsurance becomes more available or less expensive, insurance carriers may be able to take on more risk at a more competitive price.

That can potentially create:

• More favorable renewal pricing
• Greater carrier capacity
• More competition for certain accounts
• Additional options for difficult-to-insure communities
• A healthier overall insurance marketplace

That’s why we’re paying attention to what’s happening behind the scenes.

What Are We Hoping Happens Next?

Hopefully, this is just the beginning.

The next step we’d love to see is for Admitted Market carriers to begin increasing their appetites again.

If admitted carriers become more comfortable writing communities they have avoided in recent years, associations could eventually have more options and increased competition when shopping for coverage.

We’re not there yet.

And we certainly wouldn’t suggest that California’s insurance challenges are suddenly behind us.

But after years of watching premiums move almost exclusively in one direction, we’re encouraged to finally see some movement the other way.

The decrease is a welcome change, and one we hope to see continue.

Until then, we’re excited to see where this trend goes.

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