Home Insurance

Allstate Pauses New Commercial and Home Insurance Policies

Allstate had previously announced a pause in offering new home insurance, condo, and commercial insurance policies in California. The decision was driven by the significantly higher costs associated with insuring new homes due to wildfires, increased expenses for repairing properties, and higher reinsurance premiums.

State Farm recently announced that it will no longer accept applications for business and personal lines of property and casualty insurance in California. Citing reasons such as inflation, a challenging reinsurance market, and rapidly growing catastrophe exposure, the decision was made to improve the company’s financial strength. Personal auto insurance remains unaffected by this change.

Market Challenges in California Reflect Nationwide Trends

The situation in California reflects a broader trend seen across the country, where insurance companies are raising rates, restricting coverage, or even withdrawing completely from regions vulnerable to wildfires and other natural disasters in the era of climate change. Florida and Louisiana have struggled to maintain stable insurance markets after severe hurricane damage, while Colorado is witnessing rising premiums due to wildfire threats. In Oregon, an effort to map wildfire risk was rejected over concerns about skyrocketing premiums.

Climate Change and Increasing Wildfire Risks

Scientists have emphasized that climate change has contributed to a warmer and drier West over the past few decades, leading to more extreme weather conditions and an increase in the frequency and destructiveness of wildfires. California has faced some of the largest and most devastating fires in its history as a result. This escalating risk has already resulted in some homeowners being unable to obtain coverage, potentially making it more challenging for prospective buyers to secure a home. The state-run California Fair Access to Insurance Requirements Plan, serving as the insurer of last resort for many, may face mounting pressure as enrollments surge. In 2022, enrollments reached 272,846 homes.

Home Insurance Market Challenges and Industry Impact

The Insurance Information Institute reports that California has over 1.2 million homes at risk for extreme wildfires, surpassing any other state. With more homes in high-risk areas and rising costs associated with repairing or replacing fire-damaged properties, insured losses have been increasing. Similarly, Colorado has seen rising insurance premiums and reduced coverage availability, with smaller insurance companies pulling back from covering properties. In Florida, the insurance market has struggled since Hurricane Andrew in 1992, and in Louisiana, the impact of recent hurricanes has led to an insurance crisis.

The departure of major insurers from California’s market could potentially lead to a reevaluation of consumer-minded policies that have kept rates relatively low in the state for years. Proposition 103, approved by voters in 1988, grants the state insurance commissioner the authority to reject proposed rate increases and order refunds, which has been credited with saving consumers billions of dollars. However, the industry argues that these regulations limit accurate underwriting and pricing of risk. Insurance Commissioner Ricardo Lara had previously introduced regulations requiring insurers to offer discounts to customers who followed specific standards for fire-resistant roofs and creating defensible space around their homes.

Consumer Watchdog, a nonpartisan advocacy group, has deemed State Farm’s decision as unlawful, asserting that insurance companies cannot cease selling insurance to consumers solely to increase their own profits. Harvey Rosenfield, the author of Proposition 103 and founder of the group, has called for insurance companies to disclose their financial records and obtain approval from the insurance commissioner. However, the commissioner’s office has yet to respond to these concerns.

Diverse Range of Home Insurance Providers in California: Despite the challenges faced by large insurers, there are still over 100 companies listed on the state website offering residential insurance in California. However, it is important to note that some of these companies provide limited lines of coverage, such as earthquake or renter insurance.

Home Insurance Giants Pull Back from California's Home Insurance Market Amidst Rising Wildfire Risk and Construction Costs