Allstate Drops California; Will Not Write New Insurance Policies Over Wildfires, Construction Costs

Insurance giant Allstate has stopped writing new policies for homeowners, condominiums and commercial structures, citing wildfires, higher costs of construction and higher reinsurance premiums, the SF Chronicle reports.

The company, the fourth largest casualty insurance provider in the state in 2021, said the pause on new policies was “so we can continue to protect current customers,” according to spokeswoman Brittany Nash in an email to the outlet.

“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,” she wrote in a follow-up email on Friday.

The cost of rebuilding has increased with inflation, but Allstate can’t adjust prices quickly due to state regulation, Nash wrote.

The pause began last year but appeared to receive only a passing mention in industry publications. The Chronicle learned of the development this week, after reviewing an Allstate rate increase request to the California Department of Insurance. -SF Chronicle

The move follows a similar measure by State Farm – the largest property and casualty issuer in the state – which announced in late May that it would stop issuing new homeowner policies, citing inflation, wildfires and rising reinsurance costs.

The Chronicle suggests that the decision by both companies suggests there may be insurance industry woes in the state that are more severe than the public is aware of.

“State Farm is unusual in that it announces such underwriting actions. It is not required by law and most insurers do not,” said Rex Frazier, president of the Personal Insurance Federation of California, an association of insurers, in an email to The Chronicle over the weekend. 

Frazier told the outlet on Thursday that the only required public disclosure is when insurers ask the California Department of Insurance for rate increases.

In recent years, AIG and Chubb, which insure higher-end homes, have pulled coverage in some areas of the state.

Consumer advocates have noted that there are still more than 100 insurers doing business in California, even as many big names pull out.

But homeowners in high-risk fire areas may have a harder time finding coverage, leading to more usage of the FAIR Plan, a state-offered “insurer of last resort” meant as a temporary safety net that covers only fire insurance and generally costs more than other plans. 

Many insurance companies have already stopped renewing policies in fire-prone areas after fires in 2017 and 2018 devastated communities and resulted in large payouts. -SF Chronicle

Would this be happening if California’s leadership had spent the last several decades clearing dead brush and reducing the state’s wildfire risk?