Two insurance industry giants have withdrawn from the California home insurance market, saying the increased risk of wildfires and rising construction costs have led them to stop issuing new policies in the nation’s most populous state. .
State Farm announced last week that it would stop accepting applications for all commercial and personal lines of property and casualty insurance, citing inflation, a challenging reinsurance market and “rapidly growing catastrophe exposure.” The decision did not affect personal auto insurance.
“We take our responsibility to manage risk seriously,” State Farm said. “These steps need to be taken now to improve the financial strength of the company.”
Allstate, another insurance powerhouse, announced in November that it would pause new homeowners, condominium and commercial insurance policies in California to protect existing customers.
“The cost of insuring new home customers in California is much higher than what they would pay for the policies due to wildfires, higher home repair costs and higher reinsurance premiums,” Allstate said in a statement.
California’s volatile market aligns with trends across the country in which companies are raising rates, limiting coverage or withdrawing entirely from regions susceptible to wildfires and other natural disasters in the age of climate change. Florida and Louisiana have struggled to keep insurance markets healthy following extensive hurricane damage. Premiums are rising in Colorado amid wildfire threats, and an Oregon effort to map wildfire risk was rejected last year for fears that premiums would skyrocket.
Scientists say climate change has made the West hotter and drier for the past three decades and will continue to make weather more extreme and wildfires more frequent and destructive. In recent years, California has experienced the largest and most destructive fires in the state’s history.
Some California homeowners are already running out of coverage, and a shortage of new policies could make buying a home more difficult. A state-run fund that serves as an insurer of last resort for many could face pressure as enrollment soars.
The state group, the California Fair Access Insurance Requirements Plan, provides basic fire insurance coverage for properties in high-risk areas when traditional insurance companies do not. Enrollments have increased in recent years to 272,846 households in 2022.
“We just don’t have a stable insurance market,” said state Sen. Bill Dodd, D-Napa, whose Northern California district has been charred by wildfires. “What is happening is that a lot of people in my district and, frankly, other districts are… naked, they don’t have insurance.”
According to data compiled by the industry-backed Insurance Information Institute, California has more than 1.2 million homes at risk from extreme wildfires, far more than any other state.
“The number of acres burned in California has grown steadily in recent years as more people move to fire-prone areas of the state,” the institute said in a statement about the company’s departures from California. “More homes in jeopardy: Combined with rising costs to repair or replace homes damaged or lost to fire, leads to increased insured losses.”
In Colorado, which has been hit by devastating wildfires, insurance premiums have risen significantly and some smaller insurers have stopped covering property. A study commissioned by state legislators found that 76% of insurers reduced their exposures in Colorado by 2022, leaving the five largest insurance companies to dominate the market.
Florida has struggled to keep the insurance market healthy since 1992, when Hurricane Andrew tore through Homestead, killing some insurance companies and leaving many companies fearful of writing or renewing policies in Florida. Risks for carriers have also been increasing as climate change increases hurricane strength and storm intensity.
Louisiana is in the midst of an insurance crisis, exacerbated by Hurricanes Delta, Laura, Zeta and Ida in 2020 and 2021. As claims piled up, companies writing homeowners policies in the state filed for insolvency. or left, canceling or refusing to renew existing policies. .
In California, the loss of big insurers could create more pressure to relax consumer-oriented policies that have kept rates low in the state for years. Voters approved Proposition 103 in 1988, which allows the state insurance commissioner to reject proposed rate increases and order refunds. It has been credited with saving billions of dollars to consumers, but the industry says it places restrictions on precise underwriting and pricing risk.
Last year, Insurance Commissioner Ricardo Lara advanced regulations requiring insurers to give customers discounts if they follow new standards, such as building fire-resistant roofs and creating defensible space around their homes.
Before their announcements, State Farm and Allstate were seeking significant rate increases.
Consumer Watchdog, a nonpartisan advocacy group, said State Farm’s decision was illegal.
“Insurance companies can’t just stop selling insurance to consumers to make more money,” Harvey Rosenfield, author of Proposition 103 and founder of the group, said in a statement. “They have to open their books and get approval from the (state) insurance commissioner.”
Lara’s office did not respond to an email request for comment.
A state website lists more than 100 companies that sell home insurance, though some offer only limited lines of coverage, such as earthquake insurance or renters insurance.