State Farm Insurance Stops Writing Home Policies in California Due to Wildfire Risk

In a little-noticed press release on May 26, just before the Memorial Day holiday weekend in the U.S., State Farm General Insurance Company announced it would stop accepting new applications in California for certain coverage items. The change is said to impact all business and personal lines for property and casualty insurance (e.g., home insurance) effective the next day. Existing policies will remain in effect. 

State Farm meanwhile still plans to sell new auto insurance policies in the state.

State Farm, which had the largest market share (8.3% in 2021) of all insurers in California’s property and casualty market and is the nation’s biggest home and car insurer by premium volume, took this action because of rapidly increasing wildfire risk in the state and the attendant inflationary pressures in construction costs. Another insurer, American International Group, Inc. (NYSE: AIG), 17th on the list in the table below, stopped selling home policies in California in 2022.

Source: California Department of Insurance.

Wildfire property damage has become a significant risk and liability for U.S. home insurers. A disproportionate amount of the risk is in California, but other western states like Idaho and Arizona are significantly affected as well. The U.S. Forest Service estimates that 2.3 million homes in California, with an aggregate value of more than US$300 billion, are directly exposed to wildfire danger.

Sources: U.S. Forest Service, ValuePenguin.

The implications of State Farm’s actions cannot be considered good for existing California homeowners and potentially for homeowners in other at-risk areas of the western United States. Since State Farm and AIG have stopped writing new home insurance policies in California presumably because the potential profits don’t exceed the risks, other insurers must be considering this move as well. As fewer insurers offer coverage, the cost of that insurance seems certain to soar.

Furthermore, it is not impossible to think that finding any insurance company to write a home insurance policy might be difficult some years from now if the number and scope of wildfires continue to grow. We note that a buyer who intends to secure a mortgage loan as part of a home purchase must also buy a home insurance policy. If it becomes difficult to get such a policy, the pool of potential home buyers will shrink, which in turn would pressure housing prices.

California housing prices are down about 9% year-over-year, according to Redfin. Most of this decline is due of course to rising mortgage interest rates over this period. It is possible that a decline in the availability of home insurance in the Golden State (and potentially other western states) could depress future housing prices.

Median Home Sales Prices in U.S. Dollars. Source: Redfin.

Information for this briefing was found via California Department of Insurance, State Farm, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply

Video Articles

Endeavour Mining Q1 Earnings: Cash Flow Is King

G Mining Oko West Feasibility: Move Fast, Break.. Nothing?

New Gold Q1 Earnings: What’s Behind The Market’s Surprising Reaction?

Recommended

First Majestic Posts Record Cash Flows In Q1 As Production Costs Fall

Brazil Potash Secures Funding In Support Of US$2.5 Billion Autozales Project

Related News

California Rolls Out Digital Driver’s Licenses for Apple and Google Wallets

Starting Thursday, California residents can store their driver’s licenses and state IDs digitally in Apple...

Saturday, September 21, 2024, 07:39:00 AM

Rent Prices in San Francisco Plunge as Americans Relocate to Suburbs Amid Pandemic

As densely populated areas across the US become coronavirus hotspots, many Americans have been rapidly...

Sunday, July 5, 2020, 11:15:00 AM

Allstate to Hike California Home Insurance Rates by 34%, Largest Increase in Three Years

Allstate Corp. (NYSE: ALL) has announced plans to raise home insurance rates for its customers...

Saturday, August 31, 2024, 11:24:00 AM

California Introduces Slavery Reparations Proposals, Excludes Direct Financial Compensation

California lawmakers have introduced a comprehensive package of reparations bills aimed at addressing historical injustices...

Friday, February 2, 2024, 03:42:00 PM

California Leases Its Last Nuclear Plant A New Five-Year Life

As the state face potential power shortages due to high demand from the grid, California...

Friday, September 2, 2022, 10:59:00 AM