Allstate Insurance joined State Farm in quietly ending the issuance of new homeowner and business insurance policies in California, and it apparently undertook the drastic change last year.
A report from the San Francisco Chronicle cited this week’s decision by State Farm to halt the service. The news that Allstate enacted the policy months beforehand proved that the action is not an outlier in the insurance industry.
Allstate, one of the largest property and casualty insurance providers in California, hit pause on new policies last year. State Farm also halted new policies, signaling that the insurance woes in California may be more severe than first thought.https://t.co/XdpYETwUuB
— San Francisco Chronicle (@sfchronicle) June 1, 2023
According to the outlet, “Allstate has stopped writing new homeowner, condominium and commercial insurance policies in California.”
The insurance giant confirmed this report, and spokesperson Brittany Nash said it was to “continue to protect current customers.” The pause, enacted in 2022, received precious little fanfare and was barely noticed until State Farm followed suit this week.
In fact, it was the Chronicle’s looking into a rate increase request by Allstate that revealed last year’s dramatic change.
Allstate did not give an explanation for its move, but it likely followed the reasoning of State Farm. It said its recent move was due to the increased risk of wildfires and soaring construction costs in California.
The company cited as reasons for its recent change: “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”
State Farm also cited an insurance regulation that is only practiced in California. The state does not allow companies to price in future anticipated risk in their policies, a policy intended on keeping rates down.
However, it is having the unintended effect of shrinking market choices for state residents and will likely result in price increases anyway.
The press release said the company had to protect its financial strength and would continue to evaluate its situation. Current policyholders, which included 4.9% of California’s homeowners in 2022, will not lose their coverage.
It appears to be a case of state overregulation, something that is all-too-common in California. The other 49 states are not experiencing this issue in large part because they allow insurance companies to protect themselves from obvious trends that will greatly increase costs.
This is yet another example of the law of unintended consequences. In trying to be the nanny state for all, California is driving away a critical industry and pushing prices and liability higher for the very citizens it claims to protect.