State Farm Insurance has announced it will no longer offer new home insurance policies in California due to rising wildfire risks and construction costs.
The insurance company blamed its decision, which took immediate effect Saturday, on “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”
The change was necessary, it said, “to improve the company’s financial strength.”
Those already with homeowners insurance policies won’t be affected. The decision does not impact personal auto insurance.
Flames from the Jerusalem Fire consume a sign containing addresses to homes in Lake County, California, in 2015. Major wildfires in California, and losses in the billions of dollars, have led some big insurance companies to stop writing homeowners policies for households that are considered at high risk of fire.
State Farm is one of the state’s largest insurance companies, having written more homeowner insurance premiums for California residents in 2022 than any other company, according to the Insurance Information Institute.
The company’s decision comes as California continues to see more frequent and intense wildfires.
The state’s most destructive wildfire, the Camp Fire in 2018, destroyed nearly 19,000 structures, consumed roughly 153,000 acres, and killed 85 people, according to CAL Fire. The state’s largest, the August Complex Fire, was in 2020 and consumed 1 million acres of land.
Experts have warned this season’s wildfire activity could also be especially extreme. All of the new plant growth from this winter’s heavy rainfall will likely dry up come summer, creating more fuel for fires.
A home burns as the Butte Fire rages near Mountain Ranch, California, in 2015.
Insurance companies have meanwhile been trying to cut back on their homeowner policies in the state.
Wildfires in 2017 and 2018 alone eliminated a full quarter-century of the insurance industry’s profits, The New York Times reported.
Allstate Insurance in 2007 similarly announced that it would stop selling new home insurance policies in California, and it would increase the price for its remaining customers, due to wildfires and fires caused by earthquakes.
American International Group last year also cut thousands of its high-net-worth clients, The Wall Street Journal reported.
In a bid to protect homeowners, California’s insurance commissioner imposed a mandatory one-year moratorium on insurance companies canceling or refusing to renew certain residential insurance policies after a state of emergency is declared due to a wildfire disaster. Insurance companies have also been required to provide discounts for homes and businesses that take extra wildfire safety precautions.
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Clinton Mora is a reporter for Trending Insurance News. He has previously worked for the Forbes. As a contributor to Trending Insurance News, Clinton covers emerging a wide range of property and casualty insurance related stories.