State Farm halts new home policies in California due to wildfire risk, rising costs

Old_Joe

State Farm General Insurance Company: California New Business Update

State Farm General Insurance Company, State Farm’s provider of homeowners insurance in California, will cease accepting new applications including all business and personal lines property and casualty insurance, effective May 27, 2023. This decision does not impact personal auto insurance. State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.

We take seriously our responsibility to manage risk. We recognize the Governor’s administration, legislators, and the California Department of Insurance (CDI) for their wildfire loss mitigation efforts. We pledge to work constructively with the CDI and policymakers to help build market capacity in California. However, it’s necessary to take these actions now to improve the company’s financial strength. We will continue to evaluate our approach based on changing market conditions. State Farm® independent contractor agents licensed and authorized in California will continue to serve existing customers for these products and new customers for products not impacted by this decision.

Sven

Thanks for the news. This will impact California’s housing market significantly. Correct me if I am wrong, carrying home owner insurance is a requirement by the mortgage providers. Who is going to cover wildfire hazard now?

Next natural disaster to consider is hurricanes. The frequency and severity are getting worse in recent years. Truly a mess for both homeowners and the insurance business.

Tarwheel

Florida is next.

Sooner or later, insurance costs might be the factor that drives climate-change deniers to see the light. There is no doubt that climate change is fueling more extreme weather events and thus property damages. Wildfires, droughts, hurricanes, flooding… you name it.

larryB

@ Tarwheel. At the risk of sounding like a broken record and just plain being redundant,,, “climate-change deniers” are like election deniers and vaccine deniers and democracy deniers. They are repuglicans and they NEVER see the light. Until they crawl back under their rocks nothing will get done. Sorry to be so harsh but the party that wants to weaken an already weak safety net for the least fortunate among us will hardly care about climate change. Or even clean water or air.

Old_Joe

Today's Republicans: the party of "we got ours, and we're gonna keep it... and to hell with anybody or anything else."

Tarwheel

My point is most Republicans DO care about money and property. When their beliefs start costing them real money, at least some of them might start looking at things differently. If they can’t insure their homes and property, then they could face real losses from wildfires, storms, etc.

larryB

@Tarwheel ,,,,, why do you think “most Republicans Do care about money,,,”? Most Republicans vote against their own economic interests and vote for the likes of Trump because of hot button culture war issues . They are motivated by fear, ignorance and hatred of non whites, non heterosexual, non Christian others…Tax cuts for the very rich and deregulation don’t help most people of either party.

Old_Joe

Let's be careful not to assume that "absolutes" are in play here. While it's true that many Republicans vote against their own economic interests and vote for the likes of Trump "because of hot button culture war issues", it's also very true that there is a well-educated and very prosperous group of Republicans like McConnell, McCarthy, Elon Musk, Clarence Thomas and Harlan Crow, just to name a few, who care very much about deregulation and tax cuts for the rich and really don't give a damn about culture war issues other than to attract votes.

One size absolutely does not fit all.

larryB

@Old_Joe. Sure there are some really wealthy folks who greatly benefit from tax cuts and deregulation. Not enough of them to be one of the two major parties in the country. Those guys feed the ignorant masses the red meat culture war shit to them to vote for tax cuts and deregulation that benefit few and harm many. It’s genius. As I have said many times the elite don’t care about banning books, taking health care rights away from women, erasing trans people Or Jewish space lasers. They just don’t want to pay any taxes and they don’t want to be told they can’t pollute or have to have safety rules in their plants if it impacts their bottom line. Nothing new about it. But now they get the suckers to vote for their interests instead of their own. Check out the “southern strategy” and Lee Atwater.

Old_Joe

I do believe that we are both saying essentially the same thing here.

larryB

Good

Sven

Somehow this tread got sidetracked to politics. Thanks to @Old_Joe who brought to our attention about State Farm. What I want to point out is that climate change is real and it is here already in our backyard!

Not only it impact our lives but it has changed the insurance industry already. Think about the added cost to your properties due to natural disaster and the insurance companies you hold in your portfolio.

Sven

@Old_Joe, I read other insurance companies including AIG have already halted issuing new homeowner policy. It is a requirement for obtaining mortgages. How does Californians handle this? In fact, many western states are having more wildfires than previous decades.

Old_Joe

@Sven- I have no idea, since we haven't had a mortgage for many years. I can tell you that with respect to our weekend place at Guerneville, by the Russian River, a number of major carriers have declined or cancelled coverage, for a number of reasons, including the type of construction. We have been fortunate to find coverage through a smaller insurance carrier, who was recommended to us by agents representing the larger carriers who refused or cancelled our coverage.

It's a very unsettled situation, to be sure.

Old_Joe

Here's some edited excerpts from a current report in the San Francisco Chronicle:

Home buyers are likely to encounter rising insurance premiums, with coverage more difficult to find, in the wake of news that State Farm and Allstate have stopped writing new homeowner policies in California.

But the potential impact on home prices is difficult to determine, particularly in fire prone areas, according to real estate agents in the Santa Cruz mountains and Santa Rosa region, who noted that inventory remains low while demand has stayed high.

“We thought with the increase in interest rates, momentum would slow down,” said Logan Francavilla, a real estate agent with the Santa Rosa-based Prosper Real Estate Team. “But we’re still seeing multiple offers and above-asking prices.”

Homeowners insurance isn’t required by law in California, but most mortgages require it as a condition of the loan.

In Santa Rosa, where the Tubbs Fire caused devastation in 2017, it hasn’t been too hard to find an insurer willing to cover most homes, though new homeowners now may have to do more searching and be willing to pay higher premiums without State Farm and Allstate as an option, Francavilla said.

In the Santa Cruz mountains, however, realtors are more nervous about the potential impacts, especially given the continued risk of wildfire.

By and large, State Farm and Farmers Insurance have been the only two brand-name insurance companies that are still offering policies for mountain homes — with only the former offering conventional plans that cover fire insurance, said Tim Huxley, a real estate agent with Room Real Estate, which is based in Santa Cruz County.

Farmers Insurance often requires Santa Cruz mountain home buyers to purchase the state-offered FAIR Plan for fire insurance, Huxley said. The FAIR plan is an “insurer of last resort” and is generally more expensive because it covers high-risk fire areas other insurers refuse to cover.

Farmers Insurance was not immediately available to comment on its approach to fire coverage.

For a million dollar house in the Santa Cruz mountains, a conventional policy including fire insurance is usually $150 a month, whereas the FAIR Plan can be up to $600 a month, Huxley estimated. Without State Farm as an option for new homeowners, “moving forward, everything is going to have to be FAIR Plan up in the mountains,” Huxley said.

It’s possible that high insurance premiums will mean fewer offers for homes in the mountains, though, putting some downward pressure on price, said Bri Steel, owner of real estate agency Live Love Santa Cruz.

But Mike Scherer, broker and owner of Cruz Mountains Real Estate, said he thinks the real estate market will remain strong: “Our median price home is around $1.4 million. $5-6,000 a year for insurance is not going to be much of a factor."

With the additional cost of insurance, especially as more homeowners get on the FAIR Plan, people may not be able to buy the house of their dreams, said Jennifer Watson, president of the Santa Cruz County Association of Realtors.

With the lack of supply and steady high demand, Watson also said she doesn’t see home prices or sales changing much, even with the added expense of higher insurance: "There’s always going to be somebody that can pay that.”

By the way, our house in Guerneville is about 20 minutes to the west of Santa Rosa, mentioned in the above article.

Sven

@Old_Joe, Problem can creep up during the annual policy renewal. It is getting hotter and drier in Portland, OR area in recent years. Many houses hear are built with wood sliding and composition roofs; both are flammable. Some have metal roofs but very few have stucco siding due to the wet and rainy winter.

Problem in CA now could move north in next few years. Read elsewhere the insurance companies hike the rates and/or caping the coverage amounts to limit the rebuild cost.

Old_Joe

"Problem can creep up during the annual policy renewal."

Yes, for sure. That's exactly what happened with the place at Guerneville.