On May 27, 2023, State Farm General Insurance Company became the second major insurer in the past year to stop accepting new applications for property insurance, including personal and business lines. Allstate made the same decision to stop selling new home insurance policies last November, which the company publicly announced just last week.

With two of the nation’s largest insurers no longer writing new home policies, many California consumers are left with questions about why this has happened and what their next steps should be.

In this article, we’ll discuss a few reasons behind these companies’ decisions. We’ll also offer practical advice on what current and future homeowners should do in light of the recent market changes.

Why Did State Farm and Allstate Stop Selling Home Insurance?

Both State Farm and Allstate have pointed to rising costs and an increasingly challenging insurance market as key factors driving their decisions to stop writing new homeowners policies.

In State Farm’s press release, the company pointed to “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market” as reasons behind the halt. Allstate has echoed this sentiment in statements to news outlets.

But what does this mean?

Simply put, the cost of doing business in California is just too high. With extreme weather events and natural disasters becoming increasingly common, insurance companies are incurring unprecedented losses. This, compounded by state regulations that make it harder for companies to increase rates in response to these rising costs, has prompted carriers to pull out of the market to prevent further financial losses.

Agency owner Jon Gardner spoke with KTLA 5 about why major carriers are pulling out of the California home insurance market.

Watch the interview segment here.

What Should Homeowners Do Now?

While these recent market shifts can be unnerving for current and potential homeowners, there are ways to prepare for the challenges that might arise. Here are a few steps you can take to ensure you’re covered.

1. Contact Your Agent or Broker

If you’re unsure about whether you are covered, the first thing we suggest you do is contact your agent or broker to review your policy. You can also discuss savings opportunities, such as writing your auto and home policies with the same company for a multi-policy discount.

If you’re currently shopping for home insurance, try to work with a broker who has access to multiple carriers. With various options to choose from, they can find a company to insure you and help you get the coverage that will serve you best.

2. Think Before You Switch Carriers

If you’ve noticed a significant rate increase on your home policy, switching companies in search of a lower premium may seem like an attractive option. But while the grass might seem greener elsewhere, you should consider a few things before you sign the dotted line.

First, keep in mind that all carriers are increasing rates. This means you will likely have a higher premium than you did in previous years even if you switch to a different company.

Second, while it’s true you may find lower rates with a smaller or lesser-known company, there is no guarantee that your rates will stay low in the future. Driven by the prospect of savings, some unhappy clients leave their carrier only for their premiums to increase at the new company at their next renewal.

Before you make a switch, we suggest you carefully weigh the pros and cons of leaving your current company, as it may not actually be worth it in the end.

And if you do change carriers, we strongly recommend staying with large, well-established companies because it decreases your chance of being non-renewed.

3. Verify Your New Home is Insurable

If you’re preparing to buy a home near brush, you should verify that the home is insurable before you make an offer. While you’ll always be able to find coverage, you should know your rates in advance so you’re able to make an informed decision and avoid last-minute surprises.

We recommend you work through your realtor, as they can put you in contact with someone to run the numbers for you.

Once you open the escrow on your new home, finding insurance should be your top priority because finding the right carrier can take time. Leaving it to the last minute puts you at risk of not having much-needed coverage.

It’s always best to get your insurance squared away as quickly as possible. That way, you can focus on the more exciting parts of purchasing a home.

4. Consider the California FAIR Plan

Living in a brush fire area can make it difficult to find a company willing to write your policy. If you find yourself in this situation, the California FAIR Plan (CFP) may be the most viable option for you.

While the rates and coverage offerings are generally less favorable than you can find with other insurers, a FAIR Plan is the best recourse if no other companies will accept you.

The CFP provides limited coverage for certain types of claims. Keep in mind that it won’t cover you for water damage, theft, or liability. For those claims, you’ll need a secondary policy called a Difference in Conditions.

For a detailed overview of what the CFP is and how it works, see our “Homeowner Insurance – California Fair Plan” article.

“We see a lot of CFP policies where the coverage is so stripped down that if there were a major fire, the insured wouldn’t have enough money to cover many of the other related costs beyond their home being repaired.”

– Jon Gardner, agency owner

Because a FAIR Plan works differently from a standard home policy, you’ll need to work with your agent to choose each of your coverages and limits.

Having sufficient coverage is critical, so make sure you understand your FAIR Plan policy so you can be prepared in the event of a claim.

Wrap Up

While the future of the market is uncertain, following the advice above will help you face some of the common insurance challenges we have seen so far.

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