A week after the largest insurance carrier, State Farm, stopped writing new home and business policies in California—citing growing exposure from wildfires and skyrocketing building costs—it was revealed that Allstate, the fourth largest property and casualty carrier in the state, had also left the market late last year.
The company notified California's Department of Insurance that it has stopped selling new home, condominium or commercial insurance policies in the Golden State. In a statement, the Good Hands brand echoed State Farm's reason for deserting the market:
"The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher cost for repairing homes and higher reinsurance premiums," Allstate said, in the statement.
Recommended For You
Allstate said it began what it called a "pause" in writing new policies in California last year "so we can continue to protect current customers." Prior to starting the pause, Allstate had requested a 40% increase in homeowners insurance premiums from the state.
Last week, State Farm cited "rapidly growing catastrophe exposure" and rising building costs as the primary reasons it has stopped selling new home and business policies in California. State Farm had requested a 28% increase in premiums.
According to a report in the New York Times, the retreat of insurance carriers from the California market follows a pattern seen in other parts of the US that have high risk of climate-related catastrophe.
In Florida, the report said, most of the large insurance companies have pulled out of the state, forcing homeowners to turn to smaller carriers with stretched resources.
In parts of eastern Kentucky that saw severe flooding due to storms last summer, the price of flood insurance has quadrupled. Louisiana officials are offering millions of dollars in subsidies to try to draw more insurers to the state, the Times said.
This week's announcement marks the third time Allstate has paused new policies in California. In 1994, after the Northridge earthquake, and in 2007 Allstate also stopped issuing new policies in California, but it returned to the market 10 years later.
The moves by State Farm and Allstate are expected to push more property owners to flock to California's "insurer of last resort" in areas of high wildfire risk: the state's FAIR Plan, which offers temporary—and more expensive—fire coverage.
The number of FAIR policies has grown exponentially in the past five years, growing to more than 270,000 in 2022, more than double the number issued in 2018. The FAIR Plan requires insurance companies operating in California to cover losses that are proportional to their market share in the state.
The exodus of the insurance giants may weigh heavily on new home sales, as proof of fire insurance often is a prerequisite for obtaining a mortgage in fire-prone parts of California.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more inforrmation visit Asset & Logo Licensing.
