California's biggest seller of homeowners insurance says regulations and wildfires make new policies a financial loser. But there are reasons to question that explanation.
Allstate tells regulators it has stopped selling new home insurance policies in California. State Farm said it’s no longer accepting new applications.State Farm, however, has been swimming against this current. As other insurers moved out, State Farm moved in. Its market share in the Golden State grew from roughly 17.8% to 21.2% since 2018, which added more than a billion dollars in premiums to its books in the process.
If California regulation meant that rates were failing to reflect wildfire risk, State Farm could de-risk its books by slowly backing away from customers like Frazier in the fire zones, like most of its peers. Since 1988, when California voters approved Proposition 103, insurance companies have had to submit all requests for increased premiums to the state insurance commissioner’s office, along with evidence justifying their need to raise rates. That process can be slow, and even slower if companies want to hike rates by 7% or more, at which point the approval process can turn into a full-on trial.Industry groups and politicians are sounding alarms over the thefts.
The industry argument is that California’s rate regulation is forcing companies to underprice policies relative to their risk for potential payout. If companies were allowed to pass along reinsurance costs, get rate hikes through more easily, or use their own wildfire risk models in setting those prices, then State Farm wouldn’t need to make these kinds of decisions.
It’s almost certainly the case that California’s wildfires are getting worse. The double-whammy of the 2017 and 2018 fire seasons, which saw the incineration of tens of thousands of homes, was a financial disaster for insurance companies, though they have been able to raise rates and turn a profit in the years since.
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