Shelves at the Nordstrom at Westfield Topanga Mall in Canoga Park were vandalized and merchandise worth an estimated $60,000 to $100,000 was stolen on Saturday, Aug. 12, 2023. (Courtesy of Spectee)
As California business owners struggle with rising operating costs, exploitative labor laws, and the highest unemployment rate in the country, they're faced with another challenge straining their budgets: soaring commercial property insurance costs. Business owners are seeing commercial property insurance rates double, triple, and in some extreme cases, increase by as much as 400 percent in Southern California.
Why are insurance premiums getting out of control? It's a combination of bad luck and bad insurance. California's vulnerability to natural disasters like wildfires exacerbates the problem. But a rise in retail theft is also driving up costs and putting companies in a bind.
I've heard their stories firsthand: Kerry Jablonski, president of Hydroform USA Inc., said her company recently had to pay three times as much for buildings insurance as it did last year, with significantly less coverage. Mike Acevedo, who owns and manages several agricultural and commercial industrial companies in California, said his company has seen its buildings and liability insurance costs increase by more than 400%.
States have exacerbated these problems by initially not allowing insurers to price products according to the appropriate risks. Jamie Reed, president of the board of directors for C3 Risk and Insurance Services, said the state “is not approving premium increases, so instead of selling at a loss, insurers are saying they're not going to sell anything at all.” Thankfully, state regulators are trying to right that earlier wrong in order to address rising premiums.
When it comes to natural disasters, a solution proposed by California Insurance Commissioner Ricardo Lara would require insurance companies to write multiple policies in fire-prone areas. The plan would reduce the financial impact on insurance companies when natural disasters occur by spreading the risk evenly across a larger set of properties. This would encourage competition among insurance companies, and more companies writing policies in a given area would lead to more competitive pricing and lower premiums.
Lara's plan would allow insurers to base premium rates on future losses, rather than relying solely on historical data. Using forward-looking data, insurers could better assess the true risk of property insurance, especially in wildfire-prone areas. This would prevent sharp price spikes after a catastrophe, as insurers would not have to dramatically increase premiums to cover unexpected losses from such disasters.
When it comes to combating retail theft, tough-on-crime solutions are being considered.
In January, Governor Newsom met with local leaders, including Barbara Leslie, president of the Oakland Metropolitan Chamber of Commerce, to discuss the rise in retail thefts in the state. Leslie warned that there have been several cases of retail theft and property crimes, and that small businesses could lose their insurance policies. Homelessness and drug addiction are also contributing to the rise in thefts.
A bill aimed at improving this situation will be on the ballot in November. The Homelessness, Drug Addiction and Theft Reduction Act, introduced by California Safe Communities, would amend Proposition 47 by imposing tougher penalties on repeat offenders of certain crimes, including theft. The bill aims to deter repeat shoplifters by targeting repeat offenders, who contribute significantly to overall crime rates.
But for struggling small businesses, the time between now and Election Day may feel like a lifetime. Retail theft is up nearly 30% year over year in 2022, and the situation is only going to get worse. Shoplifting is up 81% in 2023 compared to 2022, according to the Los Angeles Police Department.
Sharp increases in insurance premiums have put California companies at a severe competitive disadvantage both locally and nationally. Hundreds of companies have already left California, and a recent report found that 67 percent of employers want to move their headquarters out of state.
California's job creators need meaningful solutions now, and the Legislature must prioritize fighting crime, and by extension, out-of-control insurance rates.
Tom Manzo is president and founder of the California Business and Industry Federation.