Insurance giant State Farm will no longer accept applications for new home insurance in California due to wildfire and financial risk, the firm announced on 26 May.
The decision was made “due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market”, the company said in a statement. Existing customers are not impacted by the new policy.
“We recognize the governor’s administration, legislators, and the California Department of Insurance (CDI) for their wildfire loss mitigation efforts. However, it’s necessary to take these actions now to improve the company’s financial strength,” the company stated.
As climate change continues, more areas have become prone to natural disasters like flooding and wildfires. This presents an increased cost to both insurance companies and their customers.
California’s seasons have become drier and longer in recent years. There were 7,490 wildfires in California last year, damaging 876 structures across the state. Over 11,000 homes were destroyed in the Camp fire in 2018, which caused premiums to go up and insurance companies to tighten down on eligibility requirements.
In other states like Florida, which is prone to flooding, insurance premiums have doubled or even tripled for homeowners.
“State Farm isn’t the first company to run away from markets plagued by climate-driven disasters, and it won’t be the last,” said Carly Fabian, policy advocate at Public Citizen.
American International Group Inc also exited the California homeowners market last year, while AllState also paused new homeowner, condo and commercial insurance policies last year, according to the Los Angeles Times. State Farm is one of the top home insurance writers in California, according to the Insurance Information Institute.
Insurance companies like State Farm have been major investors in fossil fuels and have contributed to the current problem they are facing, Fabian said. Regulators “should stop allowing insurers to harm their own customers and destroy insurance markets with their short-term, short-sighted profiteering off of fossil fuels”, she added.
“Given climate impacts on the insurance market, this exit is both alarming and predictable. The company’s decision should be seen as a warning sign to regulators across the country,” she said.
This page was last updated June 3, 2023
Share this article
