Umbrella insurance, once a relatively inexpensive way for homeowners to add an extra layer of liability protection, is rapidly becoming more costly.
As jury awards grow larger and medical expenses rise, insurers are increasing rates, tightening underwriting and, in some cases, pulling back from the California market entirely.
Premiums that once averaged $200-$300 a year for $1 million in coverage have risen sharply. Some policyholders are seeing rate hikes of 30% to 50% at renewal, particularly for households with teen drivers, swimming pools or other attributes deemed risky.
The rising cost of claims
Most umbrella claims stem from severe car crashes or serious injuries on personal property. When the cost of a claim exceeds the liability limit on an auto or homeowner’s policy, the umbrella policy pays the remainder, often starting at $1 million in additional coverage.
But insurers are contending with more frequent and more expensive claims. Several factors are contributing to this:
- Medical inflation: Higher medical costs mean even moderate injuries can lead to six-figure settlements or jury awards.
- Distracted driving: Automobile crash deaths from distracted driving have increased dramatically since the advent of the smartphone. At-fault drivers are often sued.
- “Nuclear” verdicts: A growing number of jury verdicts now exceed $10 million.
- Legal escalation: A rising share of liability claims now involve attorneys, which tends to prolong the claim and increase settlement amounts.
- California-specific legal risks: The state’s legal environment, including its lack of caps on non-economic damages and jury pools that often favor plaintiffs, makes large verdicts more common.
How insurers are responding
- Higher rates: Carriers are filing for substantial premium increases with state regulators. State Farm, for instance, has requested two major rate hikes for its personal umbrella program in less than six months, totaling a 68% increase.
- Stricter underwriting: Coverage is getting harder to obtain for households with multiple drivers, teen drivers, swimming pools, high-net-worth exposures, or properties with risky features like trampolines or docks. Applicants with prior claims may face additional scrutiny or be denied coverage.
- Higher primary policy limits: Insurers are increasingly requiring that umbrella applicants carry higher limits on their underlying home and auto policies.
- Reduced availability: Some carriers are exiting the California umbrella market altogether or limiting the maximum coverage they will offer.
What consumers can do
Despite the rising costs, umbrella insurance remains a critical tool for protecting against major liability claims.
Like the underlying auto or homeowner’s policy, umbrella coverage can help cover the cost of liability claims, including legal expenses such as:
- Court judgments
- Settlements
- Attorneys’ fees
- Related court costs
To navigate the shifting market, California residents should:
- Review all liability limits: Make sure your auto and home policies meet the minimum requirements to qualify for umbrella coverage.
- Bundle policies: If possible, placing your auto, homeowner’s and umbrella policies with one insurer may improve your chances of securing or maintaining coverage.
- Give us a call: We can help assess risks and shop for appropriate coverage, especially as insurer appetites shift.