Departures of major insurers create ‘insurance deserts’ where very few options remain, all of them extremely costly.
Just before much of the northern U.S. found itself engulfed in a dangerous smoky haze, climate risk prompted two of America’s largest insurers to flee California. State Farm and Allstate both recently announced they are no longer providing new homeowner policies in the state, moves that could have far-reaching impact, including in the banking industry.
State Farm cited “rapidly growing catastrophe exposure”—specifically wildfires—in its announcements. Allstate quietly hit pause on accepting new policies in California last year and made the move official last week, blaming “higher costs for repairing homes and higher reinsurance premiums.”
Steep prices. Existing customers of both companies will continue to be insured, but likely at a much higher cost. Prior to their announcements, State Farm and Allstate both filed for significant rate hikes, 28% and 39.6%, respectively.
Insurance desert. In an opinion piece for CNN, Yuliya Panfil and Dona Stewart of New America’s Future of Land and Housing Program note that departures of major insurers create “insurance deserts” where very few options remain, all of them extremely costly—even if the house in question is nowhere near a potential wildfire.
Foreclosure effect? Not being able to find insurance or afford insurance could lead homeowners to default on their loans, the CNN piece says. A Mississippi-based law firm points out that after Hurricane Katrina rising insurance rates may have been a contributing factor to the “foreclosure crisis” experienced by Gulf Coast states.
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