California’s Insurance Crisis Threatens Affordable Housing Development

The ongoing insurance crisis in California is severely impacting the availability of affordable housing. Following a series of catastrophic wildfires, insurance companies have halted new policies and canceled existing ones, citing heightened risks. This situation has left homeowners, small businesses, and particularly affordable housing developers struggling to secure necessary coverage, with many projects either delayed or abandoned due to skyrocketing insurance costs.

Insurance premiums for affordable housing have surged dramatically over the past two years, increasing between 50% to 500%. For instance, one nonprofit organization in Los Angeles saw its premium for a 100-unit supportive housing project leap from $94,000 to $519,000 in a single year—an increase of 450%. Across the state, costs that were once in the range of $300–$500 per unit annually have escalated to $1,800–$2,400 in high-risk areas. These changes add hundreds of thousands of dollars to operating budgets and millions to overall development costs, making many projects financially unfeasible.

Critical Impact on Housing Supply

California faces a significant housing crisis, needing to build 2.5 million new homes by March 2031. The current instability in the insurance market poses a serious threat to this objective. When insurance premiums rise sharply, financing for new developments becomes hesitant. Lenders are reluctant to move forward with projects, and many affordable housing providers cannot increase rents to cover these unexpected costs, leading to an existential threat for many organizations.

The situation is exacerbated by California’s outdated intervenor process, which complicates the insurance approval system. This process incentivizes professional advocates to prolong rate review proceedings, causing an average delay of 529 days for filings involving intervenors, compared to just over half that time for those that do not. During these extended delays, insurers often refrain from issuing new policies, placing affordable housing developers in a prolonged state of uncertainty.

The Department of Insurance reports that since 2013, intervenors have received a total of $14.3 million in compensation, with a staggering 90% of that amount going to one group—Consumer Watchdog—despite it having no actual consumer members. These costs ultimately translate into higher premiums for policyholders, including those involved in affordable housing development.

Urgent Reforms Needed

The current system does not protect consumers; rather, it serves as a barrier to the production of necessary housing. Proposed reforms by Insurance Commissioner Ricardo Lara seek to rectify these issues by ensuring that intervenors contribute meaningfully to their compensation, eliminating payments for redundant work, and enhancing transparency while maintaining important public input.

No other state operates under such a complicated intervenor system, and California can no longer afford to maintain it. Reforming this process is critical, not only for stabilizing the insurance market but also for ensuring that affordable housing development can proceed without hindrance.

As the crisis continues, delays in addressing these problems mean that more projects are canceled, families remain without homes, and communities face ongoing challenges in accessing affordable housing. The time for decisive action is now. Lawmakers and regulators must prioritize these reforms to restore stability to the insurance market and meet the urgent housing needs of Californians.

Jenna Abbott, the executive director of the California Council for Affordable Housing, emphasizes that fixing both the insurance market and the intervenor abuse is essential for meeting housing goals. Without swift action, California risks further exacerbating its housing crisis, leading to fewer homes, increased costs, and unfulfilled promises to those in need.