4 more insurers are leaving California after Allstate and State Farm flee wildfire risk - Fortune
Four more insurers pull out of California | Fortune
It’s getting harder to find insurers in the coastal states.
Four home insurance companies say they will not renew policies for people in California starting next year. That follows similar decisions by Allstate and State Farm earlier this year.
The most recent move is by smaller insurers. Merastar Insurance Company, Unitrin Auto and Home Insurance Company, Unitrin Direct Property and Casualty Company, and Kemper Independence Insurance Company plan to non-renew policies.
The companies say the decision was part of a restructuring of their parent company, Kemper Corp., to exit the “preferred” home and auto market—an industry term referring to a tier of risk.
That’s different from the Allstate and State Farm withdrawals, which were due in part to the state’s wildfires as well as inflation.
The impact on housing
The four insurers make up less than 1% of the state’s homeowners insurance market. Still, more insurers withdrawing from California, or at least reducing their presence in the state, could spell trouble for the housing market.
John Burns Research and Consulting’s vice president of research and demographics, Eric Finnigan, previously told Fortune that a survey of homebuilders found that buyers are concerned over the cost and availability of homeowners insurance in their region, which in turn is somewhat slowing sales. For instance, in Northern California, 20% of homebuilders surveyed, at the time, said that buyers’ concerns over property insurance are somewhat slowing sales, and in Southern California, 29% of builders said as much. Nationally, only 9% of builders said that insurance concerns were somewhat slowing sales. And it doesn’t help that California is dealing with its own affordability crisis of insurance woes.
California is just the latest state to see insurers step back from the market. Florida has seen four insurers reduce their exposure in the state following a string of natural disasters. Included among those were Farmer’s Insurance, AAA, Bankers Insurance, and Lexington Insurance, a subsidiary of AIG. And the survey mentioned above showed that 32% of homebuilders in Florida say buyers’ concerns over insurance are slowing sales, at least somewhat.
It’s likely that extreme weather events will continue to happen, and they could become more severe and more frequent. Fortune recently reported that since the 1980s, the U.S. has averaged around eight major weather events per year that caused at least $1 billion in damage. In the past five years, that skyrocketed to 18, and this year there have been 23 so far. That’s quite a problem for insurers that are already pulling out of markets they label challenging—and for the homeowners relying on their coverage.
The shrinking number of insurance options and the growing number of disasters are hitting Floridians in the wallet. The average homeowner’s premium in the state costs over $4,000, compared to the U.S. average of $1,544, according to E&E News, a division of Politico focused on environmental and energy news.
Florida’s chief financial officer has not taken the moves well, saying the companies were “ too woke” and referring to them as “the Bud Light of the insurance industry. I do feel like they have chaos in their C-suite.”
Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”