The last three years have been devastating to California home insurers. We’ve previously written about how this might impact home insurance into the future, and much of what we expected was negative: policies being non-renewed, insurers leaving the state, rates increasing, etc. Since the time of that writing, Merced Property and Casualty went insolvent and was taken over by the Department of Insurance, Capital Insurance Group was forced to merge with Auto-Owners Insurance, and more companies than we can list have begun non-renewing policies and surcharging high-risk properties.
However, amongst the constant pessimistic outlook, Warren Buffet and Berkshire Hathaway are presenting a ray of light. They’re swimming against the current and entering the California home insurance marketplace.
So how, and why, is Berkshire such a contrarian? The answers can be found in print from the head of the company. Each year, Buffett releases his annual letter to Berkshire Hathaway shareholders. And each year, like many around the world, we spend our Saturday reading, re-reading, and digesting everything contained in the letter. We want to highlight a few key excerpts relevant to Old Harbor, its clients, and any prospective insurance consumers.
“Disciplined risk evaluation is the daily focus of our insurance managers… All insurers give that message lip service. At Berkshire it is a religion, Old Testament style." (Pg. 9)
“our P/C companies have an excellent underwriting record. Berkshire has now operated at an underwriting profit for 15 of the past 16 years, the exception being 2017." (Pg. 10)
Plainly put, Berkshire’s insurance operations are the most disciplined in the world. Their commitment to underwriting properly – and foregoing the allure to compromise for the sake of increasing revenue – is unmatched in the insurance industry.
“Mistakes in assessing insurance risks can be huge and can take many years to surface…When such a mega-catastrophe strikes, we will get our share of the losses and they will be big- very big. Unlike many other insurers, however, we will be looking to add business the next day." (Pg. 10)
Most carriers in California were not appropriately underwriting their home insurance policies. They paid the price dearly and are now trying to correct course to find profitability and stability. Berkshire is not only stable and open for business, they’re expanding.
DISCLAIMER: This article is provided for general informational purposes only and should not be relied upon for legal advice. Old Harbor Insurance Services, LLC recommends you consult your risk manager, attorney, business adviser, or insurance representative for all questions or concerns.