As California business owners grapple with rising operational costs, predatory labor codes, and the highest unemployment rate in the nation, there’s yet another challenge squeezing their budgets: skyrocketing commercial property insurance rates. Business owners are seeing their commercial property insurance rates double, triple, and, in some extreme cases in Southern California, increase by as much as 400 percent.
Why are insurance prices out of control? It’s a combination of bad luck and bad policy. California’s vulnerability to natural disasters like wildfires exacerbates the issue. But rising retail theft is also driving up costs, leaving businesses in a lurch.
I have heard their stories firsthand. Kerry Jablonski, President of Hydroform USA Inc., shared that her business was recently forced to pay three times more for building insurance compared to last year—with much less coverage. Mike Acevedo, who owns and manages multiple companies in the agriculture and commercial industries in California, shared that his businesses have suffered from a more than 400 percent increase in building and liability insurance costs.
The state has exacerbated these problems by initially refusing to let insurers price for the appropriate risk. Jamie Reid, chairman of the board at C3 Risk and Insurance Services, said the state’s “not approving rate increases, so instead of selling at a loss, insurance companies are saying we’re not going to sell the product at all.” Thankfully, state regulators are attempting to fix their earlier errors to address soaring insurance premiums.
On the natural disaster front, a proposed solution by California’s insurance commissioner Ricardo Lara would require providers to write several policies in fire-prone areas. By distributing risk more evenly across a larger pool of insured properties, the plan would mitigate the financial impact on insurance companies when a natural disaster occurs. This promotes competition among insurers, as more companies writing policies in a given area would lead to more competitive pricing, driving down premium costs in the process.
Lara’s plan would also give insurers the ability to determine their rates based on future losses instead of solely relying on past data. By using forward-looking data, insurers can better assess the true risk of insuring properties, particularly in regions susceptible to wildfires. This can prevent drastic price spikes following catastrophic events, as insurers would no longer have to raise rates significantly to cover unexpected losses from such events.
When it comes to combating retail theft, tough-on-crime solutions are in the works.
In January, Governor Newsom met with community leaders to discuss rising retail theft in the state, including Oakland Metropolitan Chamber of Commerce President Barbara Leslie. Leslie warned of small businesses losing their insurance policies after dealing with several instances of retail theft and property crime, a surge that is partly fueled by homelessness and drug addiction.
In November, an initiative to improve this situation will be on the ballot. The Homelessness, Drug Addiction, and Theft Reduction Act, introduced by Californians for Safer Communities, would reform Proposition 47 by instituting stricter penalties for repeat offenders of certain crimes, including theft. By targeting repeat offenders—who contribute significantly to the overall crime rates—this act aims to deter persistent shoplifting.
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But for struggling small businesses, the time between now and Election Day could feel like a lifetime. Retail theft climbed by nearly 30 percent in 2022 compared to the previous year and it’s only getting worse. In 2023, Los Angeles police say there was an 81 percent increase in shoplifting compared to 2022.
The exponential rise in insurance premiums places California businesses at a severe competitive disadvantage—both locally and nationally. Hundreds of businesses have already fled California, and according to a recent report, 67 percent of employers want to move their headquarters out of the state.
California’s job creators need meaningful solutions today. The legislature should make tackling crime — and by extension, out-of-control insurance rates — a priority.
Tom Manzo is the president and founder of the California Business and Industrial Alliance.