LOS ANGELES (AP) — Two insurance industry giants have pulled out of the California home insurance market, saying rising wildfire risk and soaring construction costs have encouraged to stop writing new policies in the country’s most populous state.
State Farm announced last week that it would stop accepting claims for all lines of business and personal property and casualty insurance, citing inflation, a tough reinsurance market and “growing catastrophe exposure.” fast”. The decision did not affect personal auto insurance.
“We take our responsibility to manage risk seriously,” State Farm said. “It is necessary to take these steps now to improve the financial strength of the company.”
Allstate, another insurance powerhouse, announced in November that it would suspend new homeowner, condo and business insurance policies in California to protect current customers.
“The cost to insure new residential customers in California is far higher than the price they would pay for policies due to wildfires, higher costs to repair homes, 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 pulling out altogether from regions susceptible to wildfires and other natural disasters in an age of climate change. Florida and Louisiana struggled to maintain healthy insurance markets following extensive hurricane damage. Premiums are rising in Colorado amid wildfire threats, and an Oregon effort to map wildfire risk was rejected last year over fears it could skyrocket bonuses.
Scientists say climate change has made the West hotter and drier over 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 wildfires in state history.
Some California homeowners are already without coverage, and a shortage of new policies could make it harder to buy a home. A state-run pool that serves as an insurer of last resort for many could face pressure as enrollment increases.
The state pool – the California Fair Access to Insurance Requirements Plan – provides basic fire insurance coverage for properties in high-risk areas when traditional insurance companies won’t. Registrations have jumped in recent years to reach 272,846 households in 2022.
“We just don’t have a stable insurance market,” said State Sen. Bill Dodd, a Democrat from Napa, whose Northern California district has been charred by wildfires. “What’s happening is a lot of people in my district and frankly in other districts… are going 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 extreme fire risk, far more than any other state.
“The number of acres burned in California has steadily increased in recent years as more people move into fire-prone areas of the state,” the institute said in a statement about the departures from the state. the California company. “More homes at risk – combined with the increased cost of repairing or replacing homes damaged or destroyed by fire, this results in increased insured losses.
In Colorado, which has been hit by devastating wildfires, insurance premiums have risen dramatically and some smaller insurance companies have pulled out of property coverage. A study commissioned by state lawmakers found that 76% of carriers reduced exposures to Colorado in 2022, leaving the top five insurance carriers to dominate the market.
Florida has struggled to keep the insurance market healthy since 1992, when Hurricane Andrew leveled Homestead, wiped out some insurance companies and left many remaining businesses hesitant to underwrite or renew policies in Florida. . Risks to carriers have also increased as climate change increases the strength of hurricanes and the intensity of torrential rains.
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 that had purchased homeowners insurance policies in the State have become insolvent or left, canceling or refusing to renew existing policies. .
In California, the loss of major insurers could create more pressure to ease consumer-focused 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 consumers billions of dollars, but the industry says it places constraints on the accuracy of underwriting and pricing risk.
Last year, Insurance Commissioner Ricardo Lara advanced regulations requiring insurers to give discounts to customers if they followed new standards such as building fire-resistant roofs and creating defensible spaces around their houses.
Prior to their announcements, State Farm and Allstate were both 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 in order to make more money for themselves,” said Harvey Rosenfield, the author of Proposition 103 and founder of the group, 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 selling home insurance, though some offer only limited ranges of coverage, such as earthquake or renters insurance.
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Associated Press writer Coleen Slevin in Denver contributed.