Allstate has joined other major insurers with its decision to stop issuing new homeowners insurance policies in California.
Responding to inquiries from the San Francisco Chronicle, Allstate spokesperson Brittany Nash said the decision was driven by the escalating costs associated with insuring properties in the state.
“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,” Nash said, adding that Allstate is unable to quickly adjust prices due to state regulations.
Allstate’s pause in writing new policies began last year, according to the Chronicle, but the decision went largely unnoticed until a similar move by State Farm prompted a closer look at California’s property insurance market.
State Farm announced two weeks ago that it will no longer accept applications for all business and personal lines property and casualty cover.
Similar to Allstate, it cited concerns over rising construction costs, wildfire exposure and a “challenging reinsurance market.”
Rex Frazier, president of the Personal Insurance Federation of California, told the Chronicle that State Farm’s transparency in announcing underwriting actions was uncommon in the industry, as most insurers are not legally required to make such disclosures.
The only mandated disclosure for insurers scaling back eligibility in the state occurs when they seek rate increases from the California Department of Insurance, he added.
A few other insurers have sought to limit their exposure in California’s wildfire-hit market. Among them are AIG and Chubb, which have both scaled back their coverage for multimillion-dollar homes. Farmers Insurance has also reportedly canceled or declined to renew policies for numerous condominium units in San Diego.
Amid these moves, the American Property Casualty Insurance Association (APCIA) has emphasized the role of “greater stability and regulatory flexibility” in ensuring the resiliency of California’s property market.
“The first step is making sure insurers can charge rates that reflect the increasing risk of loss,” said Mark Sektnan, APCIA’s vice president for state government relations. “The California Department of Insurance is working on this. Next, we need to allow admitted insurers to include the cost of reinsurance in their rates and use forward-looking probabilistic models to accurately assess future risk. Finally, we all have one common goal: mitigate properties and reduce the risk.”
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