As California is deep in the throes of a state insurance crisis that has seen several major companies suspend offerings of new policies, one company is offering to come back.
In recent comments, Allstate said it would be willing to come back to underwriting new homeowners policies, but it will depend on what kind of benefits California’s Department of Insurance will offer as they consider rules around “catastrophic modeling” strategies.
Allstate Statement
Gerald Zimmerman, Allstate’s senior vice president of government and industry relations, recently indicated that Allstate would be open to writing new policies if promised regulations by the California Department of Insurance would go into effect.
“Allstate will begin writing new homeowner insurance policies in nearly every corner of California. If the regulations were in effect today, we would begin selling new homeowner insurance policies tomorrow,” Zimmerman said.
Reflecting the Cost
Allstate asserted that their decision to renter the California insurance market will also depend on home insurance rates, and whether they can match the cost and risk of providing coverage.
“Once home insurance rates fully reflect the cost of providing protection to consumers, we’ll be able to offer home insurance policies to more Californians with timely rate approvals, the use of our advanced wildfire modeling and reinsurance costs,” Allstate said.
2022 Withdrawal
Previously, Allstate had been one of the major insurers in the California insurance market to stop offering new policies. In 2022, the company announced that it would be no longer offering new homeowners insurance policies in the state, though it would continue renewing existing ones.
Allstate said it would “pause new homeowners, condo, and commercial insurance policies in California to protect current customers”
Catastrophe Modeling
Allstate’s return will hinge on the plan California’s Department of Insurance comes up with to make offering new policies more attractive to fleeing companies.
Under “catastrophe modeling”, insurers will be able to request rate increases that are backed up by simulation reports showing the potential risk of catastrophic events like wildfires and floods.
Wildfire Problem
One reason Allstate cited for its original departure from the state is California’s wildfire risk. The state has seen an increase in the intensity of wildfires that are driven by a combination of factors like megadroughts and rising temperatures.
CalMatters reports that “as of 2022, half of the state’s 20 largest fires had occurred over the previous five years.”
Destructive Consequences
Another reason insurers are leaving is that the cost of rebuilding homes destroyed by catastrophes and other disasters has become too expensive amidst high inflation levels.
This has left homeowners who live in high-risk areas for fire and floods without many options that they can afford.
State Farm’s Departure
Statefarm, the nation’s largest homeowner’s insurance company, had announced they would stop offering new policy applications for California property last May.
“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,” a company statement said.
California Crisis
Gabriel Sanchez from the California Department of Insurance told KION about the potential impact balance that needs to be struck between homeowners and insurance to solve the insurance crisis.
“California’s insurance crisis is decades in the making, and we are staying on track to implement all changes this year so insurance companies [can] start writing more policies in all areas,” Sanchez said. “We are balancing the urgent needs of homeowners with a need for transparency and we will review all public comments as we move forward with bringing companies back to California.”
Updated Rules
Sanchez argued in his comments that an updated set of rules needs to be implemented if there can be any hope of solving the problem.
“California is battling a 21st-century insurance crisis with 20th-century rules,” said Sanchez. “With climate change affecting every aspect of our lives, just relying on what we did in the past won’t improve insurance choices for homeowners and businesses.”
The Integrity of the Market
While Sanchez was adamant about finding a way to protect the interest of both companies and customers, he also wanted to be clear that the California government wouldn’t be bowing to bad actors in the process.
“Our goal is to safeguard the integrity of the insurance market to benefit consumers,” said Sanchez. “Not kowtow to the whims of entrenched interests that have secretly benefited from a dysfunctional marketplace for decades.”
The Plan is Months Away
According to the Insurance Journal, any plan that could be implemented to remedy the insurance market in California would only go into effect in December at the earliest.
Allstate, The Hartford, State Farm, Farmers Insurance, and the United Services Automobile Association have either paused new policy offerings or will no longer offer new policies in California, which leaves state residents struggling with limited affordable options in the meantime.
