Major Insurance Firm Limits New Homeowners Insurance in California Amid Wildfires

A for sale sign is posted in front of a home in San Anselmo, Calif., on March 22, 2023. (Justin Sullivan/Getty Images)

Yet another major national insurance provider will no longer be selling insurance policies to new homeowners in the state of California amid rising costs and increasing risks of wildfires, leaving property owners and renters with limited options.

Farmers Insurance, the state’s second-largest homeowners carrier, placed a cap on the number of new homeowners policies starting on July 3, a spokesperson for the insurer said in an emailed statement to The Epoch Times.

The company cited increased costs amid inflation and “severe weather events” such as wildfires as reasoning for the move.

“With record-breaking inflation, severe weather events, and reconstruction costs continuing to climb, we are focused on serving our customers while effectively managing our business,” the insurance company said. “Effective July 3, Farmers will limit new homeowners insurance policies in California to a level consistent with the volume we projected to write each month before recent market changes.”

The announcement comes after State Farm, one of the largest insurers in the United States, announced in May that it will no longer accept new homeowners’ policies in California.

In a statement at the time, the Bloomington, Illinois-headquartered company said the decision was made due to “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”

The firm stressed the move does not impact personal auto insurance or existing customers.

“We take seriously our responsibility to manage risk. We recognize the Governor’s administration, legislators, and the California Department of Insurance (CDI) for their wildfire loss mitigation efforts,” State Farm said. “We pledge to work constructively with the CDI and policymakers to help build market capacity in California. However, it’s necessary to take these actions now to improve the company’s financial strength.”

A house burns on Platina Road at the Zogg Fire near Ono, Calif., on Sept. 27, 2020. (Ethan Swope/AP Photo)

High Costs for Insurers

State Farm noted that it will “continue to evaluate” its approach to the homeowners’ policies as market conditions change.

A month later in June, Glenview, Illinois-headquartered Allstate confirmed a similar move for new homeowner policies in California, again citing the risks of wildfires.

In a statement obtained by The Epoch Times, the insurance provider said it has “paused” selling new policies for personal and business properties in California since last year so that it can “continue to protect current customers.”

“The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes, and higher reinsurance premiums,” Allstate said.

The decision does not impact existing customers or their ability to renew their policies.

However, the companies’ decisions have led to a tighter and more competitive insurance market and ultimately increased costs for new homeowners.

Together, Farmers, State Farm, and Allstate account for 21.6 percent of the California market, with roughly 19.4 million premiums, according to 2022 data (pdf) from the California Department of Insurance.

They are not the only firms to announce policy changes. Two other insurers, AIG and Chubb, have also stopped renewing policies for homeowners across California in recent years, citing similar issues with rising prices and wildfire risks.

According to the Washington Examiner, the number of homeowners in California who have lost coverage has drastically increased in recent years, while non-renewal of home insurance policies soared by 30 percent in 2021 compared to a year earlier.

View of a burned-out commercial building following the Dixie Fire, a wildfire that tore through the town of Greenville, Calif., on Aug. 5, 2021. (Fred Greaves/Reuters)

‘Outdated’ Regulatory Framework

While the Department of Insurance told The Epoch Times that the latest move likely will not significantly change its footprint in the state, experts are calling on insurance companies to do more while stressing that the state’s “outdated” regulatory framework needs to be addressed.

Under California’s 1988 insurance law, insurance providers are required to get “prior approval” from the state’s Department of Insurance before they can raise their rates, which can add additional time to the application process and lead to increased costs for the insurer.

Additionally, current regulations do not allow insurance companies to set rates that price in the risk of extreme weather or natural disasters as it stands today, instead only allowing them to look backward at the risks over the last 20 years, making it expensive for providers in the Golden State, and forcing them to wind back coverage.

“Insurers do not want to retrench from one of the nation’s most important markets, but cannot continue to operate and protect policyholders when insurers are struggling to secure an adequate rate and manage their risk exposure,” David A. Sampson, American Property Casualty Insurance Association president and CEO, told Reinsurance News.

“Insurers must have the financial strength to deliver on our promises to customers when disaster strikes,” Mr. Sampson continued. “This means insurers need tools to manage catastrophic risk and California’s outdated regulatory regime is not providing those tools. Insurers are committed to California, and we look forward to working with the California Department of Insurance and policymakers to enact real solutions so the Golden State can have a functioning and thriving insurance marketplace that benefits policyholders.”

Tom Ozimek contributed to this report.