Why are big insurance companies not giving coverage to new customers in California?
Another major insurer has said that it will stop selling new homeowner insurance in California to “protect current customers” due to the increased costs.
Two major insurance companies, Allstate and State Farm, have announced that they will stop selling property and casualty coverage to new customers in California. While Allstate informed the California Department of Insurance last year the news wasn’t widely known until reported on by the San Francisco Chronicle. The fourth largest insurer in the Golden State took the decision so that it “can continue to protect current customers.” The company cited increased costs from wildfires, repairing homes and elevated reinsurance premiums for the decision.
Last week, State Farm, the largest insurer in the state, made a similar move for the same reasons: “due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.” State Farm’s decision applies to all business and personal lines property and casualty insurance. However, it does not impact personal auto insurance.
Why are big insurance companies not giving coverage to new customers in California?
Both insurers cited catastrophes, Allstate specifically mentioned wildfires, as part of what is driving up costs from claims. While the 2022 fire season was surprisingly quiet with just 362,455 acres burned and 876 structures damaged or destroyed, the Golden State really just “got lucky,” according to Lenya Quinn-Davidson, a fire advisor for the University of California Cooperative Extension. The five-year moving average has been rising rapidly in recent years with three seasons in that period topping the list for most acreage burned.
This has been aided by climate change Quinn-Davidson told the New York Times. As temperatures rise there is an increased potential for wildfires to rapidly intensify and spread at ever more astonishing speeds.
The 2020 fire season broke records scorching 4.3 million acres and destroying 11,116 structures. The following year saw another 2.5 million acres torched and 3,846 properties damaged or destroyed.
Large swaths of the state will go into this fire season with below normal risk of wildfire thanks in part to the a series of atmospheric rivers that drenched the Golden State this winter. However, what seemed like an endless “Pineapple Express,” as they are called for the US West Coast, also left insurers reeling. Moody’s estimates that the 25 events caused $5 billion to $7 billion in damages from hundreds of inches of snow and flooding caused by the winter storms.