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By Khristopher J. Brooks
Allstate, one of the nation’s largest insurance companies, has joined State Farm in deciding to halt sales of property and casualty coverage to new customers in California, saying it’s too pricey to underwrite policies in the state which has seen thousands of natural disasters in recent years.
Allstate quietly stopped issuing new policies in California months ago, but didn’t announce the move until Friday. Allstate was the fourth-largest insurer in California, according to the most recent 2021 state data. It earned $4.3 billion in premiums that year and incurred $2.6 billion in losses.
“We paused new homeowners, condo and commercial insurance policies in California last year so we can continue to protect current customers,” Allstate told CBS News in a statement Friday. “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.”
In 2021, California experienced at least 7,396 wildfires, which burned nearly 2.6 million acres of land, according to the California Department of Forestry and Fire Protection. The state had an additional 7,490 wildfires that burned 362,455 acres last year.
According to the California Department of Insurance (CDI), insurance companies that cover property may be required under California law to cover living expenses such as emergency shelter and food, personal property and valuables, as well damage to the property and other buildings or structures on it; the removal of trees, shrubs and debris, and water damage not caused by a flood. Allstate said the state doesn’t allow insurers to quickly adjust their rates to cover the increased costs for disasters.
Allstate’s announcement comes just days after another major insurer said it was
In that case, State Farm said last week it will no longer be taking new customers in the Golden State because of “rapidly growing catastrophe exposure,” among other factors. The company said it will continue to work with the state’s insurance commission and evaluate the market over time, indicating that this new policy could change depending on the economy.
State Farm was the largest property insurer in California in 2021 and brought in more than $7 billion in premiums that year, but incurred losses of about $4 billion, state data shows.
State insurance officials said State Farm’s decision doesn’t mean residents will be uncovered, noting that about 115 other companies will still write policies in California.
“Announcements such as State Farm’s can create uncertainty and anxiety among consumers looking for homeowners insurance,” California’s Department of Insurance said in a statement this week. “While the California Department of Insurance cannot legally control a company’s business decision, we can help Californians navigate their options.”
Allstate and State Farm aren’t the only insurers to stop or limit property insurance coverage in California. American International Group (AIG) notified thousands of Californians that their policies would not be renewed, the Wall Street Journal reported last year.
Some auto insurers also began stepping away from California this year, claiming that it has become too expensive to cover drivers, CBS Los Angeles . Auto insurance losses in California spiked 25% while premiums increased by only 4.5% between 2020 and 2021, according to the American Property Casualty Insurance Association.
Khristopher J. Brooks is a reporter for CBS MoneyWatch. He previously worked as a reporter for the Omaha World-Herald, Newsday and the Florida Times-Union. His reporting primarily focuses on the U.S. housing market, the business of sports and bankruptcy.
First published on June 2, 2023 / 5:06 PM EDT
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