Allstate, Farmers and State Farm Insurance have all decided not to insure new home insurance policies in California. Between them, they account for 43% of the State’s home insurance market.
The Cause and Potential Risks
Costs of insurance have increased due to inflation, severe weather occurrences, and the rising cost of construction as the graph below highlights.
But, the State Insurance Commissioner won’t let insurers raise premiums to account for the increasing risk of wildfires.
Due to this, remaining home insurers are likely to cherry-pick who they will sell home insurance policies to. In addition, there is a risk that if they are not allowed to raise premiums, they too will leave the state.
Homeowners need to be vigilant in making sure that they do not lose existing coverage on their homes.
Homes that may be more difficult to Insure
- Old homes especially ones 50+ years (since replacement values are far higher than insured value)
- Roofs that have reached their typical useful life: 25-30 years old (because this is a big ticket item)
- Homes that do not have fences around pools due to high danger of injury
- Homes that have old wiring and old electrical panels because of high fire hazard
- Vacant homes/non-primary residences due to arson, high fire risks
- Short-term rentals due to liability risk and high wear and tear. Homeowners should review their policies to ensure that the fine print allows short-term rentals
What should you do
- Consult an insurance professional on the adequacy of your policy coverage. As the graph above shows, replacement costs have increased significantly. Your insurance professional should be able to guide you on whether your current coverage is sufficient in the event of an insurable event. Additionally, they would also be able to tell you if you are at risk of becoming uninsured (if your insurance coverage is below a threshold of replacement cost, you are deemed a high risk and insurers can refuse to insure you.