Insurance giant State Farm is stopping insuring new homes in California, citing catastrophic wildfires
Insurance giant State Farm will stop insuring new homes in California, citing catastrophic wildfires and rapidly rising inflation costs that have made policies more expensive
- State Farm has announced that they will stop selling new home insurance policies in California starting Saturday
- The company, one of California’s largest insurers, said it made the decision because of the frequencies of forest fires and the high cost of reconstruction
- Existing policyholders will not be affected and the company will still sell auto insurance in the state
America’s largest home insurance company has announced it will no longer insure homes in California because the risk of wildfires was too great and the cost of rebuilding too high.
State Farm, the nation’s largest auto and home insurer by premium volume, said existing customers would not be affected.
But from Saturday, no new home insurance policies will be issued. The company will continue to offer auto insurance.
State Farm said it “made this decision because of historic increases in construction costs outpacing inflation, rapidly growing exposure to catastrophes and a challenging reinsurance market.”
In its statement, State Farm said it “takes seriously our responsibility to manage risk.”
A firefighter battles the campfire as it sweeps through Paradise, California in November 2018. State Farm will no longer insure homes in California because of the risks
The charred remains of Paradise, California are seen in December 2018, after the devastating campfire
State Farm is the nation’s largest auto and home insurer by premium volume
The Bloomington, Illinois-based company said it was “necessary to take these actions now to improve the company’s financial strength.”
They added: “We will continue to evaluate our approach based on changing market conditions.”
State Farm’s move follows American International Group’s decision last year to terminate insurance policies on thousands of high-priced properties. The group informed its wealthy clients in California that their policies would not be renewed.
The notices were part of a plan by AIG to stop selling California home insurance policies through a division regulated by the state’s insurance department.
Michael Soller, a deputy insurance commissioner for California, said The Wall Street Journal that the state was working hard to reduce the risk of wildfires.
He said they were ‘really going after the root causes of the insurance issues, which is wildfire risk’.
A new report has exposed the most disaster-prone counties in the US – communities in California and Florida exposed as some of the most dangerous
An aerial view of the homes destroyed by the campfire in Paradise, California, as seen in February 2019
California homes are also at risk of mudslides, as witnessed Feb. 28 in Los Angeles County
Flooding is also a high risk: Homes are surrounded by flooding in Planada on Jan. 11
Soller said California has created an insurance discount program that accounts for consumer wildfire mitigation investments.
“The factors driving State Farm’s decision are beyond our control, including climate change, reinsurance costs affecting the entire insurance industry, and global inflation,” Soller said.
The Environmental Protection Agency, in their section dedicated to the California wildfiresconfirm that the situation is deteriorating.
Wildfires, a long-standing and frequent threat to California, are expected to increase in intensity and frequency as a result of climate change.
The five largest fires on record in the state have all occurred since 2018, according to the California Department of Forestry and Fire Protection.