State Farm decision highlights challenges in California’s property market
State Farm decision highlights challenges in California’s property market | Insurance Business America
Property
State Farm decision highlights challenges in California’s property market
Market needs “greater stability and regulatory flexibility,” says trade association
Property
By
Mika Pangilinan
In response to State Farm’s recent decision to stop writing new property insurance policies in California, the American Property Casualty Insurance Association (APCIA) has issued a statement highlighting the challenges faced by the property market in the state.
Mark Sektnan, APCIA’s vice president for state government relations, emphasized the need for workable solutions and reduced risks in the face of increasing costs and changing climate conditions.
“The reality is inflation has increased the cost of every aspect involved in a homeowners insurance claim,” he said. “It is costing more and taking longer to rebuild homes after a covered loss.”
According to Sektnan, the California Department of Insurance (CDI) has been collaborating with insurers to address these issues and ensure adequate rates that cover the growing risks resulting from climate change and the expanding number of wildfire-prone communities.
He also drew attention to the regulatory limitations faced by insurers in California, pointing to an “outdated” 1988 stature that hampers their ability to adapt to climate-related risks in 2023.
To address the challenges faced by the market and increase coverage availability for consumers and businesses, Sektnan stressed the importance of “greater stability and regulatory flexibility.”
“The first step is making sure insurers can charge rates that reflect the increasing risk of loss,” said Sektnan. “CDI is working on this. Next, we need to allow admitted insurers to include the cost of reinsurance in their rates and use forward-looking probabilistic models to accurately assess future risk. Finally, we all have one common goal: mitigate properties and reduce the risk.”
Sektnan went on to highlight the role that insurance plays as a “vital economic safety net for consumers.”
“Insurers are committed to California, and we look forward to working with CDI and policymakers to enact real solutions so the Golden State can have a functioning and thriving insurance marketplace that benefits policyholders,” he said.
The decision was made due to “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market,” said the insurance giant in its statement.
CDI spokesperson Michael Soller stated that the factors driving State Farm’s decision are beyond the regulator’s control.
“It’s important to note that current State Farm customers are not affected, and no non-renewals are being issued as a result of this announcement,” said Soller via CNN.
State Farm joins other insurers that have recently made moves to pull back from California’s wildfire-hit market.
Both AIG and Chubb have also scaled back their coverage for multimillion-dollar homes in the state, according to the Wall Street Journal.
What are your thoughts on this story? Feel free to comment below.
Related Stories
Keep up with the latest news and events
Join our mailing list, it’s free!
