Will California, at the forefront of the mega-fires, soon be uninsurable? Two of the largest insurance companies in the US state have just announced that they are stopping the underwriting of new home insurance policies, justifying this decision in particular by the multiplication of natural disasters.
It was through a press release, published on May 26, that State Farm, number one in home insurance in the “Golden State”, indicated “to stop accepting new requests […] in historical increase in construction costs, exceeding inflation, a rapidly growing exposure to natural disasters and a difficult reinsurance market”. “It is necessary to take these steps now to improve the financial strength of the company,” State Farm added.
In the process, Allstate, another big market player in California, on June 2 made public a similar measure, taken on the sly in November 2022. “We have suspended new insurance policies for homeowners, condominiums and businesses in California last year in order to be able to continue to protect current customers,” the company said in a press release, relayed by the American press. “The cost of insuring new residential customers in California is much higher than the price they would pay for property and casualty insurance policies covering wildfires, due to the very high costs to repair homes and reinsurance premiums. higher”, she explained.
These decisions are being made as California is increasingly exposed to the flames. Over the past five years, the western US state has suffered an average of more than 7,000 wildfires per year, burning an average of more than 8,000 km2, according to data from the California governor’s office. Global warming is no stranger to the increase in the number and intensity of forest fires, scientists agree.
After the announcement of State Farm, the Californian authorities wanted to be reassuring. “There are approximately 115 insurance companies that continue to underwrite residential policies statewide,” the California Department of Insurance said in a statement in late May, while regretting “announcements such as those from State Farm ( which) can create uncertainty and anxiety among consumers seeking home insurance”. “There is no non-renewal (of contracts) with this announcement” from State Farm, the department also stressed.
Already last year, two other American insurers, American International Group (AIG) and Chubb, decided to reduce coverage for high-end California properties due to wildfires. Across the Atlantic, it is feared that these successive announcements will spread. “We are marching towards an uninsurable future, not just in California but across the United States,” Dave Jones, director of the Climate Risk Initiative at the University of California at Berkeley School of Law, told the media. American Vox.
The phenomenon already seems to be on the rise in other states. Last week, the Wall Street Journal reported that insurer AIG would limit home coverage for high-value properties across the United States, including some in New York and Florida. Still in Florida, Farmers Group has completely stopped underwriting new home insurance policies, citing the historically high costs of natural disasters and significant reconstruction costs.
So much so that climate change challenges the insurance model, especially in France? The risk was pointed out this Tuesday morning by Cécile Duflot, former environmental minister and now director general of the NGO Oxfam, citing the Californian example. “Insurers are now the nose on climate change. (…) The insurers are on alert, saying: we will no longer be able to work. When insurers no longer insure, neither the country nor the economy works”, she warned on the antenna of Europe 1.
