State Farm and Allstate, two of the largest nationwide insurance companies, have decided to pull back from the home insurance marketplace. They are citing the escalating risk of California wildfires and skyrocketing construction costs. 

Farmers Insurance canceled numerous property insurance policies in San Diego communities in February due to the active fire risks.

The two industry giants both disclosed that they would no longer write new policies in the state with the most population.

Allstate, announced in November that it would temporarily pause issuing new homeowners, condo, and commercial insurance policies in California. And last week, State Farm said it will stop accepting applications for all commercial and personal lines of property and casualty insurance.

Both State Farm and Allstate had been seeking substantial rate increases. Harvey Rosenfield the founder of Consumer Watchdog, a nonpartisan advocacy group spoke out.

“Insurance companies can’t just stop selling insurance to consumers in order to make more money for themselves," Rosenfield, who authored Proposition 103 said. “They have to open their books and get the insurance commissioner’s approval.”

 Proposition 103, which became law in 1988, grants the California insurance commissioner the authority to reject proposed rate increases and issue refunds. It has been credited with saving consumers billions of dollars. But the insurance industry argues that it restricts accurate underwriting and pricing of risk.

California Wildfires stress the state

The insurance marketplace in the state is mirroring national trends. Many companies are raising rates, limiting coverage, or completely withdrawing from wildfire-prone regions.

Florida and Louisiana have also faced challenges maintaining healthy insurance markets following significant hurricane damage.

Colorado premiums are on the rise due to wildfire threats. And in Oregon, it was decided not to map wildfire risks because it would cause premiums to surge.

The Western states in the U.S. have become warmer and drier over the past three decades creating more extreme weather conditions. And increasingly frequent and destructive wildfires. California, in particular, has witnessed the largest and most devastating fires in its history in recent years.

According to data from the Insurance Information Institute, California has more than 1.2 million homes at high risk of extreme wildfires. This is higher than any other. The institute also claims that the number of acres burned in California has been steadily on the rise.

Many homeowners in fire-prone areas are already unable to obtain insurance coverage. And this impacts new home purchases. 

The California Fair Access to Insurance Requirements Plan is a state-run pool serving as the insurer of last resort. It is now facing pressure with the surge of enrollments. In 2022 enrollments in the plan reached 272,846 homes.