In a move that raises concerns about the state of California’s insurance industry, Allstate, the fourth largest casualty insurance provider in the state, has halted the writing of new policies for homeowners, condominiums, and commercial structures.
The decision comes as a response to the escalating threat of wildfires, soaring construction expenses, and increasing reinsurance premiums.
Allstate spokesperson Brittany Nash clarified that the pause aims to safeguard the interests of existing customers.
Explaining the rationale behind the suspension, Nash emphasized the exorbitant cost of insuring new home customers in California.
She pointed out that the prices offered to policyholders are significantly higher due to the prevalence of wildfires, mounting expenses associated with home repairs, and elevated reinsurance premiums.
Unfortunately, the cost of rebuilding has surged in tandem with inflation.
Nash underscored that Allstate is unable to promptly adjust prices due to state regulations governing the insurance market.
Although the pause on new policies was initiated last year, it only gained attention recently when the San Francisco Chronicle reviewed Allstate’s rate increase request to the California Department of Insurance.
The Chronicle’s findings shed light on the broader industry trend, as it was revealed that State Farm, the state’s largest property and casualty issuer, had also announced the cessation of new homeowner policies due to inflation, wildfires, and escalating reinsurance costs.
The Chronicle suggests that these measures by Allstate and State Farm indicate more profound challenges facing the insurance industry in California than previously acknowledged by the public.
Rex Frazier, president of the Personal Insurance Federation of California, acknowledged State Farm’s exceptional transparency in announcing such underwriting actions, as most insurers are not legally obligated to do so.
Frazier emphasized that the only mandatory disclosure requirement is when insurers seek rate increases from the California Department of Insurance.
Over the past years, AIG and Chubb, two insurers specializing in higher-end homes, have withdrawn coverage from certain areas of the state.
While there are still over 100 insurance companies operating in California, consumer advocates acknowledge that homeowners residing in high-risk fire areas may encounter difficulties in obtaining coverage.
Consequently, reliance on the FAIR Plan, a state-provided “insurer of last resort,” is expected to rise.
However, this safety net, which primarily offers fire insurance, tends to be more costly than other plans.
The recurrence of devastating fires in 2017 and 2018, coupled with substantial payouts made by insurance companies, prompted many to cease policy renewals in fire-prone regions.
This latest development with Allstate and State Farm raises a thought-provoking question: Would the insurance industry be facing such challenges if California’s leadership had prioritized efforts to clear dead brush and reduce the state’s wildfire risk over the past few decades?
