State Farm to Stop Insuring California Homes
There’ll be fewer late-night calls with Jake from State Farm in the sunshine state from now on, meaning fewer khakis and fewer new homes insured.
What happened: State Farm has become the second major insurance company after American International Group (AIG) to stop accepting new homeowner insurance applications in California due to growing wildfire risk and rebuild costs for the state.
Background: In 2021, State Farm had the largest share of California’s property and casualty market at 8.3 percent, representing over $7 billion in written premiums. Until its exit, State Farm was helping to insure the 2.3 million homes valued at over $343 billion that the US Forest Service determined are directly exposed to wildfire danger.
Why the change of heart?
In a statement, State Farm has cited soaring construction costs, catastrophe exposure, and a challenging reinsurance market as reasons to take action toward improving the company’s financial health.
- Turns out, that when the bulk of your customers make large claims year over year, it’s not great for business.
What is means: Two major insurers moving out of the game may have other companies considering making the same move. The net result points towards higher prices from the remaining companies left to offer home insurance.
- To counter, the California Department of Insurance (CDI) imposed a moratorium on policy non-renewals and discounts to consumers in hopes of softening the blow on California residents.
Zoom out: Wildfires aren’t the only natural disaster expected to cost more with climate change. There are still several areas prone to flooding and storm damage that have an increasing risk profile with time.
We may be seeing the beginning of a transition where insurance pricing or lack of coverage will push homeowners to think twice about where they choose to settle.