Escalating Wildfires and Construction Costs Prompt Allstate to Cease New Home Insurance Policies in California, Following State Farm

Thang Truong
Thang Truong
Updated on:

In the face of skyrocketing property prices and intensifying wildfire threats, Californian home buyers are now encountering a new hurdle: procuring an insurance provider for their prospective homes. State Farm General Insurance Co., just last week, announced its discontinuation of new property and casualty coverage applications in California. This move is in response to the increasing costs of wildfires and construction, as well as a demanding reinsurance market.

Following suit, Allstate Corp. has recently informed the state Department of Insurance about their cessation of new home insurance policies from the previous year. This information came with a request for a substantial 40% hike in rates for property and casualty insurance for home and business.

The decisions made by these two insurance giants – State Farm and Allstate, ranked as the largest and fourth-largest property insurers in California respectively in 2021 – could aggravate what the FAIR Plan, an insurance pool mandated by the state, terms an “imminent insurance availability crisis.”

“An alarming number of people are going without insurance,” says Bill Dodd, a Democratic state senator representing parts of Northern California. His constituents are clamoring for coverage. The FAIR Plan, designed as a last-resort coverage provider with high rates and minimal coverage, saw a significant 70% spike in enrollments from 2019 to 2022, covering 272,846 homes.

There has been a heightened demand from insurers for a relaxation in California’s consumer-centric policies that have successfully kept rates in check over the past decades, especially in the wake of devastating wildfires in recent years.

The typical annual insurance premium for a California homeowner is $1,300, considerably less than the $2,000 in other wildfire-prone states and $4,000 in Florida, which faces frequent hurricanes, as reported by the Insurance Information Institute.

However, new home buyers may end up paying more, irrespective of the proximity of their homes to wildfire hotspots. Prior to State Farm’s declaration, the company had requested a 28% increase in homeowners’ insurance rates. Allstate, on the other hand, has filed for a 39.6% increase.

The impact of the insurance crunch is already evident across the state, even in areas where wildfire risks are low. For instance, in San Francisco, potential deals have reportedly collapsed as prospective buyers could not secure insurance.

Insurance is a crucial part of buying a home, usually required by mortgage lenders as proof before approving a transaction to safeguard their investment. The absence of insurance would predominantly compel buyers to resort to an all-cash purchase.

As California’s insurance crisis escalates, the industry is targeting the state’s prominent consumer protection law, Proposition 103. Passed by voters in 1988, this law has significantly saved consumers from increased insurance rate hikes.

“We’ve lost two decades’ worth of underwriting profit in just six years, primarily due to the catastrophic wildfires we’ve encountered,” said Janet Ruiz, a spokesperson with the Insurance Information Institute.

Harvey Rosenfield, the author of Proposition 103 and founder of the advocacy group Consumer Watchdog, claimed that while climate change may necessitate insurance companies to raise rates, companies are exploiting wildfire costs to overcharge customers.

Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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