LOS ANGELES — After wildfires and atmospheric rivers have ravaged California over the past few years, Allstate and State Farm Insurance have now decided to no longer offer homeowner policies in California.
“Inside the Issues” host Alex Cohen spoke with climate journalist Molly Wood, host of the podcast, “Everybody in the Pool,” about how having fewer insurance offerings could impact real estate in the Golden state.
State Farm announced in late May that it was no longer issuing new California applicants, while Allstate quietly informed the state Department of Insurance that it would stop writing insurance policies last year.
Geico has also closed several offices throughout the state, while other insurers have inched away from the market.
Wood said these moves are a massive deal for the state’s real estate market and will no doubt determine where people look for and buy homes in California in the future.
“It means that if you are trying to buy a house, the first thing that you need to be thinking about is insurance. Of course, you cannot get a loan without insurance. So you have to know that the home is insurable in the first place,” she added.
The two insurance companies’ decisions to discontinue homeowner policies is because of more wildfires sweeping throughout the state each year.
A new PNAS report finds that the area burned by summer wildfires has increased in California fivefold since 1971.
As climate change takes hold in the Golden state, there are many more populous areas prone to wildfires, including parts of Los Angeles and Oakland.
Wood noted that she may soon be personally affected by these broadening insurance restrictions.
“I live in the Oakland Hills and I know people in other parts of the hills who have had their insurance policies canceled. That can happen. So if you are living in a high-risk place, even if you did get a homeowner’s policy, and I’m crossing my fingers as I say this, you could find yourself in a situation where your policy is canceled,” she said.
Californians who end up in this situation will have limited options for homeowner insurance. Wood added that the state-backed FAIR Plan will always be available, but that it’s the “worst-case scenario of home insurance.”
The bare bones policy is expensive and rarely covers the entire cost of rebuilding a house.
However, Wood said State Farm and Allstate may stall homeowner insurance policies in California as a negotiating tactic in order to be allowed to increase premiums in the future.
“We limit the amount that premiums can be raised. And so they’re finding that this state is either unprofitable or less profitable. But in any case, it is business and they are running a business, and the fact is that it’s possible we pay too little for insurance considering how much risk there really is,” she said.
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