State Farm will not sell new home insurance in California. Can the state consolidate the market? – GV wire [Boss Insurance]

State Farm Will Not Sell New Home Insurance In California.  Can The State Consolidate The Market?  - Gv Wire

State Farm made national headlines last week when it announced it would stop selling new homeowners insurance policies in California. As California’s largest single provider of bundled home insurance policies – the company held 20% of the market in 2021 – the news struck some as the start of a new emergency, with insurers abandoning a fire-ravaged state and floods.

Ben Christopher

Grace Gedye
Cal Matters

But the retraction of California’s largest home insurance provider is just the latest development in a wildfire-fueled crisis that has been smoldering below the surface of the state’s insurance market for years.

After the catastrophic fires of 2017 and 2018, the number of Californians who were told by their insurer that their policy would not be renewed jumped 42% to nearly 235,000 households. The two years of severe wildfires wiped out decades of industry profits.

American International Group told thousands of customers last year that their home insurance policies would not be renewed, and Chubb, a premium insurer, said it would continue to not renew some of its clients.

And late last year, thousands of condo owners also found themselves among the uninsurable as state-regulated insurers dropped suburban homeowners’ association members en masse in the wildfire-prone shrubs of San Diego County.

“State Farm kind of went public with what they were doing, but I think over the last few years we’ve all seen insurers restrict and withdraw their business in California,” said Seren Taylor, vice president of Personal Insurance. Federation of California, an industry trade group that counts State Farm among its members.

State officials emphasized that current State Farm policyholders will not lose their coverage.

“It is important to note that current customers will not lose their insurance,” Michael Soller, assistant commissioner of insurance with the California Department of Insurance, wrote in an email to CalMatters. This decision will affect people buying home insurance, in that they will have one less provider to choose from.

State Farm, in a press release, blamed high construction costs that make it very expensive to rebuild after a home in California was destroyed, the growing risk of natural disaster – especially wildfires – and “a market difficult reinsurance”.

Insurance companies frequently purchase their own insurance – known as “reinsurance” – to minimize the risk of incurring millions of dollars in costs at one time, such as might occur in a catastrophic wildfire. or a major hurricane.

Reinsurance premiums have skyrocketed in recent years in disaster-prone states like fire-ravaged California and storm-ravaged Florida, Louisiana and Texas. California law prohibits insurers from passing on the cost of reinsurance to customers. Industry groups are pushing to change that.

“It’s difficult for lawmakers,” said John Norwood, lobbyist for Independent Insurance Brokers. “Because the solution is higher prices.”