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Concerns grow as insurance companies shy away from California properties

Insurers cite the state's heightened wildfire risk and high construction costs as reasons for their decision to suspend new policies for California property owners.
Posted: 5:46 PM, Jun 05, 2023
Updated: 2023-06-05 21:20:35-04
houses in California (file)

BAKERSFIELD, Calif. (KERO) — Two major insurance companies, Allstate and State Farm, have decided to stop issuing property insurance policies for new customers in California. The move comes after a rise in construction due to inflation and the heightened risk of wildfires, among other reasons.

The insurers are two of the state's leading insurance carriers, with State Farm holding about 21 percent of the homeowner's insurance market in California while Allstate holds around 6 percent.

Personal Insurance Federation of California President Rex Frazier is one of the insurance professionals who say they don't see this ban being lifted anytime soon.

"When a company does this, it's not anything they want to do quickly. It's not an easy decision to come to, and when they do, it means there's something amiss," said Frazier.

According to Frazier, the cost to insure new homes in California is far higher than the price they would pay for policies due to higher costs for reconstruction of homes, as well as higher reinsurance premiums.

Frazier goes on to say that what's been causing a lot of insurance clients' problems isn't the change in the insurance companies' rates, it's how much coverage people will have to buy to feel like they have enough to be protected if the worst case scenario happens.

"Our regional wildfire issues have now become a statewide impact issue when it comes to the state's largest insurance company. That's concerning, and it shows that there is a sign of something else going on and they can no longer continue to take the flood of customers that have been coming their way," said Frazier.

Frazier adds now that Allstate and State Farm applications for new homeowners have been put on pause, he is concerned that for those who live in high wildfire-exposed areas, the next option will be a last resort - the California Fair Plan.

"The Fair Plan is the high-risk pool for insured properties. The very big downside though, is because it is the market of last resort, it has the highest risk properties in it relative to the general population. That means the average price you'll pay in the Fair Plan is much higher than the regular market," said Frazier.

READ MORE FROM SCRIPPS NEWS: Allstate stops issuing property insurance policies in California

At a minimum, Frazier says he believes Allstate and State Farm's overall hope is to stabilize their results.

"There are certain rules for how much you can write and how much business you can have in force versus how much money you have. State Farm is a mutual, which means they don't have shareholders. They're like a co-op. They don't put out quarterly reports in the way that a big stock company like Allstate or something like that where they have to answer questions from investors every quarter," said Frazier.

Trenea Smart, owner of the Get Smart Insurance Agency in Bakersfield, says the insurance situation has become more critical than ever.

"I think a lot of people are talking to the insurance commissioner and letting him know how dire this situation is in California," said Smart. "I've been in the insurance industry for over 25 years and I have never seen it this bad."

Smart says the insurance companies' decision is based mostly on the increased costs of home construction due to inflation. According to Smart, a repair claim that would have cost $5,000 to fulfill now costs around $10,000, and that's in addition to any supply chain issues still happening as effects of the pandemic.

"We have an insurance commissioner that is pro-consumer, however, it's not working out well for the companies because they're in business to make money. If they can't get the rate increases that they need, then they're going to stop writing [policies]. That's what a lot of the companies have done," said Smart. "They've been trying to get rate increases for about 3 years."

Smart says now that 2 of the state's top property insurers have put a hold on new insurance policy applications, people will more than likely go the local route, and it's a route she encourages new homeowners to embark on as soon as possible, adding that Get Smart Insurance is only one of several local options in Kern County.

"The one thing that I would say to any of our customers is that they shop early. In other words, don't wait until you get into escrow to call us. Call us the minute you know you're going to buy that house, or most companies send out renewals 30 to 45 days before," said Smart. "So if you're getting non-renewed, you need to call us the minute that you get that non-renewal notice to give us the time to shop for you and to be able to get the best pricing that we can."


One of the main reasons why Allstate and State Farm say they're suspending new property insurance policies in California is due to the danger of wildfires.

Breaking down the numbers from Cal Fire:

  • There were nearly 7,500 wildfires in California in 2022.
  • In 2022, fires burned more than 360,000 acres and damaged or destroyed almost 900 structures.
  • There were just over 550,000 calls for emergency responders throughout the state in 2022.