In late May 2023, State Farm announced it would stop writing new property business in California. Allstate announced on Friday June 2, 2023 that it had stopped selling new property and casualty policies in California; the insurer had actually stopped issuing new policies months earlier. The reasons are the same: increased construction costs and worsening climate factors that make it harder to do business. Allstate stopped writing new homeowners, condominium, and commercial property policies in 2022 to continue protecting insureds who already had Allstate policies in force.
Allstate and State Farm are not the only insurers restricting policies in California. AIG and Chubb have also scaled back their coverage for multimillion-dollar homes, and Farmers has canceled or nonrenewed a number of condominium units in San Diego.
It has become a catch-22. Insurers need to be able to charge actuarially correct premiums in order to be able to remain solvent and pay claims, but increased premiums make it harder for insureds to purchase coverage. When insureds can't obtain coverage in the private market, then they go to the FAIR plan, which is the insurer of last resort. FAIR plan policies are often more restrictive than those available through the standard market.
As wildfires have ravaged California over the past few years, the insurance department has issued bulletins regarding the payment of ALE, settlement of catastrophic fire losses, inventory requirements, grace periods, and moratoriums on cancellations and nonrenewals for those affected by the wildfires. These bulletins were designed to assist insureds in coping with catastrophic losses.
In October 2022, the department issued a regulation requiring insurers to incorporate wildfire safety standards into their rating practices. The Safer from Wildfire framework gives insureds specific steps to take to protect and reduce the risks to their property before a wildfire occurs. Taking such steps makes the properties safer, encouraging insurers to continue providing coverage.
Christine G. Barlow, CPCU
Christine G. Barlow, CPCU, is Executive Editor of FC&S Expert Coverage Interpretation, a division of National Underwriter Company and ALM. Christine has over thirty years’ experience in the insurance industry, beginning as a claims adjuster then working as an underwriter and underwriting supervisor handling personal lines. Christine regularly presents and moderates webinars on a variety of topics and is an experienced presenter.