Insurance rates climb from fires, COVID, inflation, worker shortage

Inflation, a labor shortage, effects from the lingering COVID pandemic and increasingly devastating fires are boosting the cost of insurance for homes, cars and businesses.

“Everything,” said Sunnyvale insurance agent Steve Nelson, “has gone up.”

The pandemic and high costs of living, especially in the Bay Area, have aggravated a shortage of construction workers, and combined with inflation-boosting prices for building materials, insurers are on the hook for rising replacement costs when homes and commercial buildings are destroyed or damaged. So homeowner premiums have gone up 20% to 25% in the past three years, Nelson said, adding that commercial policies vary so much it’s not possible to specify the increase accurately. Auto insurance pricing also depends on several factors, including zip code, but Nelson estimates it’s risen about 15% in the past few years, despite drivers getting a break during the worst of the pandemic.

Huge home-insurance payouts by insurers after wildfires sent some providers fleeing from the risky areas of California, leaving fewer companies in the Bay Area and the state, with more risk in their portfolios, leading them to charge higher prices, said Nelson, who co-owns Nelson/Nelson Insurance Services with his cousin Jason Nelson.

The two Nelsons represent the third generation to run the business, after Nelson’s grandfather Buford founded it just after the Second World War. This news organization spoke with him about the state of insurance coverage at a time when prices are up considerably for virtually every consumer good. His comments have been edited for length and clarity.

Q: How did the COVID pandemic affect the insurance industry in general, including for home, auto and business?

A: The insurance industry as a whole automated quite a bit more. The automation has given people (in the insurance business) the ability to work from home, but I think the efficiency level has dropped a little bit. In some ways it speeded up the process, in other ways it slowed down our ability to be able to quote new policies and be efficient — it’s kind of a Catch-22. Insurance is kind of slow on the digital side of things, applications, things of that nature. We do a lot of it on the computer but there’s a lot of parts and pieces where we were still taking information in and filling it out … on a PDF form by hand. A lot of that’s changed. They’ve automated it, where they’re pulling that information from other sources.

Q: How did the COVID pandemic affect car insurance, when so many people shifted to working from home?

A: A lot of companies stepped up and automatically decreased people’s mileage driven per year — everything’s based on miles driven for your rates. Some companies gave discounts, other companies … just automatically based everybody at 3,500 miles a year.

Q: What’s happened with those discounts now that many people have resumed earlier driving patterns?

A: That has been taken off now that things are back open. Everybody’s being charged based on their normal driving habits. Some people who work remotely, we keep them low — they just have to provide some proof, like mileage readings.

Q: What’s affecting homeowner’s insurance?

A: What really has been hitting people in California are the long-term effects of several years of large fires — there’s definitely a trickle-down effect in insurance. Even if you’re not in an area that has high fire risk, in insurance we all share risk. Those fires have driven companies out of areas that they used to cover in. A lot of companies have just decided, “We’re no longer going to insure in these areas.” Because there are less insurance companies, (remaining ones) are taking on more risk, and that has driven costs up. Where we used to not have much of an issue writing insurance in places like Saratoga or Los Altos, or the hills of Redwood City and certain areas of Fremont and Milpitas, now there are times, even in Morgan Hill, where we’ll submit something that any company would have taken, and they say no.

Q: How is inflation affecting the insurance market?