Insurance companies are pulling back on homeowners’ policies in vulnerable areas nationally out of fear of floods, storms and fires made worse by climate change and soaring costs of rebuilding.
American International Group is planning curbs on home-insurance sales to affluent customers in some 200 ZIP Codes across the U.S. at high risk of floods or wildfires, people familiar with the matter said. The states affected include New York, Delaware, Florida, Colorado, Montana, Idaho and Wyoming, the people said. AIG has already restricted new business in California.
In a little-noticed pullback, Farmers Group earlier this year stopped offering new home-insurance policies in hurricane-prone Florida. A spokesman said that “with catastrophe costs at historically high levels and reconstruction costs continuing to climb,” the pause was designed to help Farmers more effectively manage its risk exposure.
State Farm and Allstate, meanwhile, are pulling back from California’s home-insurance market. The shift is making it hard for some home buyers to get insurance and is sparking fierce wrangling over what is most to blame: climate change, inflation or regulations.
Payouts on claims to California homeowners more than doubled in 2019 through 2022, while premiums increased by only around a third, according to the American Property Casualty Insurance Association, an industry group.
Insurers in California say regulatory curbs on pricing mean they can’t recoup an inflation-driven surge in rebuilding costs, as well as rising losses from wildfires.
Consumer advocates accuse the major insurance companies of using their market power to push back on policyholder protections. “They’re trying to bully their way out of oversight,” said Douglas Heller, director of insurance at the Consumer Federation of America. “They’re exploiting the moment to get something they’ve always wanted.”
State Farm and Allstate declined to comment on the suggestion that they are trying to pressure regulators.The insurers’ moves leave homeowners with fewer choices or, in some cases, no choice at all, according to insurance brokers.
In California, State Farm and Allstate were “the only game in town” for multimillion-dollar homes in wildfire-exposed areas such as Lake Tahoe or Carmel, according to Jim Tolliver, a San Francisco-based broker with Woodruff Sawyer.
The decision by insurers to stop writing new home-insurance policies means properties including a Beverly Hills mansion that Tolliver is trying to find coverage for might not be insurable, he said. Allstate and State Farm are two of the five biggest insurers in the state. California has an insurer of last resort, the Fair Access to Insurance Requirements Plan, but that is expensive and offers bare-bones coverage of at most $3 million.
“California is a broken insurance system,” Tolliver said. “It’s a ticking time bomb.”
Ricardo Lara, the state’s insurance commissioner, disagrees, saying insurers in the past have paused and restarted writing policies. “We have been here before after wildfires and market changes,” he said. Lara, an elected official, added that the pullback won’t deter his staff from scrutinizing insurers’ pricing strategies “to prevent unjustifiably high rates.”
The question of what rates are justified is a thorny one.
California hasn’t been a consistently bad place for companies to sell home insurance in recent years. The average loss ratio, which measures claims in relation to premiums, on these policies was better in the state than in the U.S. as a whole in six of the 10 years through 2022, according to the ratings company AM Best....
Recently:
"State Farm Halts Home-Insurance Sales in California"
"Yet another home insurance giant quietly stops writing new policies in California"
