Hurricane Milton is currently making its way toward Florida, a state infamous for its skyrocketing homeowners’ insurance premiums driven by frequent storms. Meanwhile, California faces its own insurance crisis exacerbated by wildfires and earthquakes, yet its insurance rates remain notably lower than those in Florida. As the California Department of Insurance is considering proposed “insurance reforms,” there’s growing uncertainty about whether these changes will result in increased premiums or offer some relief to consumers.

Recently, an article in the San Francisco Chronicle shed light on the stark contrasts between California and Florida when it comes to natural disaster challenges. Florida regularly faces hurricanes, while California struggles with catastrophic wildfires and the ever-present threat of earthquakes. Peter Heckathorn, who grew up in California and later moved to Florida, shared his personal journey. Before he returned to California last year, he was paying an annual homeowners’ insurance premium of $12,500. Now residing in Orinda, California, he was astonished to receive quotes from insurance brokers that totaled only $3,500 a year. Initially, he was reluctant to discuss his low rate, fearing it might be a mistake, but after learning that many others in California were also enjoying reasonable rates, he playfully remarked to friends and family, “Californians are truly unaware of their good fortune.”

According to data from the National Association of Insurance Commissioners, as of 2021, Florida had the highest average annual homeowners’ insurance premium in the nation at $2,437, while California ranked 20th with an average premium of $1,403. Another significant factor to consider is the median home value; over 37% of homes in California are valued above $500,000, compared to only 10% in Florida. Although these statistics are from three years ago, today’s trends in home prices and premiums are likely even higher.

Insurance experts point out that California’s insurance laws, established decades ago, play a crucial role in keeping the state’s premiums relatively low compared to Florida’s. However, as the state moves toward potential reforms, concerns are rising about a possible shift toward Florida’s insurance framework. Currently, California law prohibits insurance companies from using catastrophe models to predict and price risks, forcing them to rely strictly on historical data for pricing. This restriction has led many insurers to withdraw from California’s homeowners’ insurance market or stop writing new policies altogether. David Russell, a professor of insurance at CSU Northridge, noted that California stands alone in having such limitations.

Before the end of the year, California’s Department of Insurance intends to lift these restrictions in a bid to attract insurers back and encourage major companies like State Farm and Allstate to resume offering new policies.

Experts generally concur that these reforms are likely to push premiums higher. Even before any changes are implemented, State Farm and Allstate have already been permitted to raise their rates by 20% and 34%, respectively, with State Farm applying for an additional 30% hike. Other significant insurers have also recently increased rates by over 10% for their customers.