Allstate Halts Sale of New Policies in California due to Climate and Inflationary Challenges

One of the largest homeowner insurance companies in the US, Allstate, announced that it will no longer sell new property casualty insurance policies in California. Henceforth, California property owners cannot open new insurance policies with Allstate. In an emailed statement, the company cited severe climate change, higher building costs, inflationary challenges, and state regulations as the reasons for the decision. Allstate’s fourth-largest property and casualty insurance offered in California last year also applies to commercial and condominium insurance policies. The state’s largest homeowner-state insurer, State Farm, made an identical announcement last week, blaming ‘rapidly growing catastrophe exposure’.

Over the years in the US, companies have been raising insurance rates, limiting coverage or ending services in disaster-prone regions. In Florida, most of the significant insurers have left the state, forcing homeowners to rely on smaller private companies to cover homes in the face of severe storms that have become typical. Allstate mentioned that the cost of insuring new homebuyers is higher than policy prices due to wildfires, higher costs of rebuilding homes, and high reinsurance premiums, indicating that the company would pause long-term policy quotas to protect existing clients.

Allstate limited the sale of new homeowner policies for the first time in 1994 following the Northridge earthquake, and in 2007, they also paused selling new homeowner insurance policies in California. The combined measures by Allstate and State Farm to limit the sale of new policies may prompt property owners to look towards other options, such as the FAIR Plan, which provides temporary, and generally more expensive, fire coverage.

The FAIR Plan is Californian state-offered ”insurer of last resort” in high-risk wildfire areas, and its number of insured properties more than doubled from 2018 to 2022, with over 270,000 FAIR policies issued to date. Insurers operating in California are also required to cover loss proportionate to their market share in the state.