LOS ANGELES — Two insurance industry giants have pulled back from California’s home insurance marketplace, saying that increasing wildfire risk and soaring construction costs have prompted them to stop writing new policies in the nation’s most populous state.
State Farm announced last week it would stop accepting applications for all business and personal lines of property and casualty insurance, citing inflation, a challenging reinsurance market and “rapidly growing catastrophe exposure.” The decision did not impact personal auto insurance.
“We take seriously our responsibility to manage risk,” State Farm said. “It’s necessary to take these actions now to improve the company’s financial strength.”
Allstate, another insurance powerhouse, announced in November it would pause new homeowners, condo and commercial insurance policies in California 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 in a statement.
California’s unsettled market aligns with trends across the country in which companies are boosting rates, limiting coverage or pulling out completely from regions susceptible to wildfires and other natural disasters in the era of climate change. Florida and Louisiana have struggled to keep healthy insurance markets following extensive damage from hurricanes.
Premiums are rising in Colorado amid wildfire threats, and an Oregon effort to map wildfire risk was rejected last year because of fears it would cause premiums to skyrocket.
Scientists say climate change has made the West warmer and drier over the last three decades and will continue to make weather more extreme and wildfires more frequent and destructive.
Some California homeowners already are going without coverage, and a shortage of new policies could make it more difficult to buy a home. A state-run pool that serves as the insurer of last resort for many could face pressure as enrollments surge.
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 will not. Enrollments have jumped in recent years.
“We just don’t have a stable insurance market,” said state Sen. Bill Dodd, a Democrat from Napa. “What’s happening is a lot of people in my district and frankly other districts are … going naked — they have no insurance.”