State Farm Insurance announced that it will no longer offer new homeowners insurance policies in California due to increased wildfire risk and construction costs.
The insurance company blamed its decision, which took effect immediately on Saturday, on “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure and a difficult reinsurance market.”
The change was necessary, he said, “to improve the financial strength of the business”.
Those who already have home insurance policies will not be affected. The decision has no impact on personal auto insurance.
Flames from the Jerusalem Fire consume a sign with home addresses in Lake County, California in 2015. Large California wildfires and multi-billion dollar losses have led some major companies to insurance to stop writing home insurance policies for households considered to be at high risk of fire.
State Farm is one of the largest insurance companies in the state, writing more home insurance premiums for California residents in 2022 than any other company, according to the Insurance Information Institute.
The company’s decision comes as California continues to see more frequent and intense wildfires.
The state’s most destructive wildfire, Camp Fire in 2018, destroyed nearly 19,000 structures, consumed about 153,000 acres and killed 85 people, according to CAL Fire. The largest in the state, the August Complex Fire, occurred in 2020 and consumed 1 million acres of land.
Experts have warned that this season’s wildfire activity could also be particularly extreme. Any new plant growth from this winter’s heavy rains will likely dry up next summer, creating more fuel for the fires.
A house burns as the Butte Fire rages near Mountain Ranch, California in 2015.
Insurance companies have meanwhile tried to reduce their home insurance policies in the state.
Wildfires in 2017 and 2018 alone wiped out a quarter century of insurance industry profits, The New York Times reported.
Allstate Insurance also announced in 2007 that it would stop selling new homeowners insurance policies in California and raise the price for its remaining customers, due to wildfires and fires caused by earthquakes.
American International Group also cut thousands of its wealthy clients last year, the Wall Street Journal reported.
In an effort to protect homeowners, the California Insurance Commissioner imposed a mandatory one-year moratorium on insurance companies canceling or refusing to renew certain home insurance policies after a state of emergency was declared in due to a forest fire. Insurance companies have also been required to offer discounts to homes and businesses that take extra wildfire safety precautions.