The American Property Casualty Insurance Association (APCIA) responding to State Farm’s announcement has said that they will no longer write new property insurance policies in California.
Only days ago, the US primary insurance giant State Farm stated that it was ceasing to underwrite commercial and residential property in the State of California, citing exposure-related issues and a challenging reinsurance market environment.
California insurers operate under an outdated 1988 statute and regulatory structure that does not allow them to adapt to the 2023 climate change created increased risks, stated Mark Sektnan, the APCIA Vice President for State Government Relations.
With the expansion of market capacity and availability of coverage for consumers and businesses, insurers need greater stability and regulatory flexibility to navigate the current difficult market conditions and manage rapidly evolving risks, including potential solvency-related threats.
Sektan stated that the first step would be to make sure insurers can charge rates that reflect the increased risk of loss and has noted that the California Department of Insurance (CDI) is working on this.
Another suggestion is the need to allow admitted insurers to include the cost of reinsurance in their rates and use forward-looking probabilistic models to accurately assess future risk and finally, be able to mitigate properties and reduce the risk.
Sektnan commented on the new development, “The reality is inflation has increased the cost of every aspect involved in an insurance claim. It is costing more and taking longer to rebuild homes after a covered loss. The California Department of Insurance (CDI) is working with insurers towards achieving adequate rates and making other market improvements because the admitted market continues to struggle with inadequate rates that don’t cover the increased risks caused by climate change and the growing number of communities in wildfire-prone areas.
“Insurance is a vital economic safety net; we must work together to provide consumers and businesses with the insurance coverage they need. Insurers are committed to California, and we look forward to working with CDI and policymakers to enact real solutions so the Golden State can have a functioning and thriving insurance marketplace that benefits policyholders.”
