State Farm, which cited historic increases in construction costs, “rapidly growing” catastrophe risks, and reinsurance market challenges as the reasons behind its decision, is the largest provider of homeowners insurance in the state, protecting an estimated 22% of residents.And it is not the only one looking to cut its losses in the wildfire-prone state.
Regulatory factors in California"have really been the hidden driver" causing insurers to reduce their footprint in the state, Jerry Theodorou, the director of the finance, insurance, and trade program at the R Street Institute, told the Washington Examiner. "The evolution of really what the exposure [to drought and wildfires] has been in California, coupled with all these other economic factors, have really created a lot of financial pressure for companies," Karen Collins, vice president of property and environmental policy at the American Property and Casualty Insurance Association, told the Washington Examiner.
While reinsurance premiums have spiked in recent years to reflect the uptick in extreme weather, providers in California, unlike other states, are barred under state law from passing those costs along to consumers. “You have these conditions which are different. And actuaries, the quantitative folks at the insurance companies that determine rates, need to factor in the exposure, not just the experience," Theodorou said.
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