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Why are California fire insurance providers leaving the state?

On Behalf of | Jul 10, 2023 | Insurance Law

In 2021, California had the largest, most destructive fires than any other state with more than 2.2 million acres burned in 9,280 fires, and 2023 has already seen 2,251 wildfires.

Unfortunately, these wildfires do not just stay in wildlands. They often impact structures, such as homes and businesses.

Property insurance news

In November of 2022, Allstate Insurance stated they would no longer provide homeowners insurance policies to new builds in California due in part to the wildfire risk. The company stated a concern about protecting its current customers.

In June of 2023, State Farm announced that it also would not take new applications for homeowners or business insurance. The company stated that inflated construction costs and wildfire risk impacted the company’s finances, so it would no longer insure new customers.

The news that two of the largest insurance companies have denied new applicants has further unsettled California’s property insurance market, where some companies have pulled out of areas that have a high risk of fires, causing many to go without coverage.

California’s Contribution

Proposition 103 from 1988 allowed the state to control insurance rates, keeping them down for years through rate increase proposal rejections and refund orders. Although this saved consumers money, price controls increased the risk to insurance companies, damaging their financial stability.

What California offers

If you live in a high-risk area or cannot find fire insurance, California has a FAIR Plan that offers basic fire insurance. The Department of Insurance oversees the program and seeks to ensure that all property owners in the state have at least basic coverage. Insurance companies control the FAIR Plan through a private association, and it only serves three percent of the population right now.

If you plan to build, investigate ways to reduce your insurance burden and find the right policy.