The apartment insurance crisis in California is affecting building owners across Los Angeles. Rising premiums, non-renewals, and limited coverage options are reshaping the investment landscape.

The Insurance Landscape Has Changed

If you own an apartment building in Los Angeles, navigating apartment insurance in California has become challenging. You’ve likely noticed dramatic changes in your property insurance over the past few years. Premiums have increased substantially, some carriers have stopped writing new policies, and others have exited California entirely.

This isn’t just an inconvenience—it’s a fundamental shift that affects property values, financing, and operating costs.

What’s Driving the Crisis

Wildfire Risk

California’s increasing wildfire frequency and severity have caused billions in insured losses. Even properties not in fire zones are affected as insurers reprice risk statewide.

Reinsurance Costs

Insurance companies buy their own insurance (reinsurance) to spread risk. Global reinsurance costs have increased dramatically, and those costs are passed to policyholders.

Regulatory Environment

California’s Proposition 103 (1988) requires insurance commissioner approval for rate increases. Insurers argue they can’t charge enough to cover actual risk, leading some to leave the market entirely.

Climate Change

Beyond wildfires, insurers are factoring in increased risk from:

• Flooding and mudslides
• Extreme heat events
• Sea level rise in coastal areas

How This Affects LA Apartment Owners

Premium Increases

Many owners have seen premiums increase 30-100% or more over the past few years. A policy that cost $15,000 in 2020 might cost $25,000-$30,000 today.

Non-Renewals

Some insurers are simply not renewing policies, forcing owners to find new coverage—often at higher rates with less favorable terms.

Coverage Reductions

Even when policies renew, you may see:

• Higher deductibles
• Lower coverage limits
• More exclusions
• Actual cash value instead of replacement cost

Impact on NOI and Value

Higher insurance costs directly reduce your NOI:

• $10,000 increase in insurance = $10,000 less NOI
• At a 5% cap rate, that’s $200,000 less property value

The FAIR Plan: Last Resort Coverage (see California FAIR Plan)

What Is the FAIR Plan?

The California FAIR Plan is a state-mandated insurance pool that provides basic fire coverage when you can’t get insurance in the regular market. It’s meant to be a last resort, not a first choice.

FAIR Plan Limitations

• Fire coverage only: Doesn’t include liability, theft, water damage, etc.
• Coverage caps: Limited to $3 million for commercial properties
• Higher rates: Often more expensive than standard policies
• Need supplemental coverage: Must buy a “Difference in Conditions” (DIC) policy for full protection

FAIR Plan + DIC Strategy

Many owners now use a combination:

• FAIR Plan for fire coverage
• DIC policy for liability, water, and other perils
• Combined cost may exceed previous single policy

Strategies for Managing Insurance Costs

1. Shop Aggressively

• Work with multiple brokers
• Get quotes from different carriers
• Don’t wait until renewal—start shopping 90+ days early
• Consider surplus lines carriers

2. Improve Your Risk Profile

Insurers offer better rates for:

• Updated electrical systems
• New roofs
• Fire-resistant materials
• Security systems
• Sprinkler systems
• Good claims history

3. Adjust Coverage Strategically

• Consider higher deductibles to lower premiums
• Review coverage limits—are you over-insured?
• Understand what you actually need vs. nice-to-have

4. Bundle Properties

If you own multiple buildings:

• Insure them together for volume discounts
• Consider a portfolio policy
• Spread risk across different locations

5. Join Industry Groups

Some landlord associations offer group insurance programs with better rates than individual policies.

Impact on Transactions

For Sellers

• Buyers will verify insurability before closing
• High insurance costs affect buyer underwriting
• Provide your current policy info early in due diligence

For Buyers

• Get insurance quotes during due diligence
• Don’t assume seller’s rates will transfer
• Factor realistic insurance costs into your underwriting
• Verify the property is insurable at all

For Lenders

• Banks require proof of insurance to fund loans
• Some properties are becoming harder to finance due to insurance issues
• Lenders may require specific coverage amounts

Looking Ahead

Regulatory Changes

California’s insurance commissioner has approved some rate increases and is working on reforms to keep insurers in the market. However, significant improvement may take years.

New Market Entrants

Some insurers are entering or re-entering California, but often at higher price points or with stricter underwriting.

Long-Term Adaptation

Property owners should expect insurance to remain a significant and growing expense. Building this into your long-term financial planning is essential.

Quick FAQs

Q: Can I operate without insurance?
A: Not practically. Lenders require it, and the liability risk is too great. Even if you own free and clear, one lawsuit could wipe out your equity.

Q: Will my premiums go down if I retrofit for earthquakes?
A: Earthquake insurance is separate from fire/liability insurance. Retrofit may help with earthquake coverage but won’t necessarily affect your primary policy.

Q: Should I buy earthquake insurance?
A: It’s a personal decision based on risk tolerance. Earthquake insurance has high deductibles (typically 10-15% of coverage) and significant premiums.

Have questions about how insurance affects your property’s value or operations? Contact me to discuss.

Navigating apartment insurance in California requires proactive planning and risk management. If insurance costs are affecting your investment decisions, let’s discuss your options.