“State Farm General Insurance Company made this decision due to historic increases in construction costs due to inflation, rapidly growing risk exposure and a challenging insurance market,” the company said in a statement. It is important to take these steps now to improve the company’s financial strength. We will continue to evaluate our approach as market conditions change.
The company acknowledged the state government’s efforts to reduce wildfire losses and pledged to “work constructively” with the California Department of Insurance and policymakers to build market capacity in California. However, these steps need to be taken now to improve the company’s financial strength.
State Farm did not respond to a request for comment.
Nearly 25,000 homes and other structures have been destroyed by wildfires in California. Thousands of others were severely affected. The California Department of Insurance estimates that an average of 77 percent more acres will burn in the state by 2100, and that insurance companies may “withdraw insurance” as conditions worsen, according to The Post.
According to Ryan Tompkins, a forest and natural resources consultant at the University of California, San Francisco, insurance coverage is declining in parts of California, such as the entire Sierra Nevada region.
“Many of our communities in rural and forested California are not only experiencing an increase in wildfires and increased wildfires, but they are also experiencing increased insurance problems,” Tompkins said. “They are fighting. They are getting non-renewable. We are witnessing a silent and insidious effect on the economy.
The communities most affected “may be more likely to have been victimized in the past,” Tompkins added, further emphasizing their economic burden. “Many of the communities I serve are struggling with these issues themselves. … If you have a mortgage, you need insurance as part of the deal. If you can’t get insurance, the damage will be worse.
Rising construction costs nationwide will exacerbate climate crisis concerns for insurers, said Janet Ruiz, director of communications for the Insurance Information Institute, a nonprofit that provides information on the insurance industry.
“Reinsurance is becoming more expensive because of the volume of losses, not just in California, but in other states as well,” she said.
In the wake of Hurricane Ian, nearly a dozen homeowners insurance companies in Florida have gone bankrupt, The Post reported, leaving hundreds of thousands of property owners scrambling for coverage.
California’s “Things are a little different, but we’ve been able to avoid bankruptcy so far,” Ruiz said. Instead, “companies are reducing how many policies they can handle in each area. Other companies are not renovating in high-risk areas.
As climate disasters — from wildfires, droughts, heavy rains and storms — intensify in California and across the country, insurance companies and government regulation must find ways to adapt, said Noah Diefenbaugh, a climate scientist and professor at Stanford University.
“Home insurance is a key way for people to manage climate-related risks. And we’re seeing that these events can be very expensive both for individuals,” Diefenbaugh said, “and obviously for insurance companies.”
State Farm’s decision to stop offering home insurance in the most populous state shows how “hard to adapt” to the climate crisis., Diffenbaugh added. “What is becoming clear is that the gap between what is happening and what we are prepared for is widening.”
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