State Farm’s Refusal to Write New CA Homeowner Policies Underscore Emerging Insurance Crisis

By Carl Medford, CRS Special to the Forum

As difficult as it is to buy a home these days, another roadblock has been added: obtaining homeowner’s insurance. In response to the growing losses from wildfires and other catastrophes, State Farm has just joined the long list of insurers who will no longer write new homeowner policies in the Golden State.

A recent CalMatters article by Ben Christopher And Grace Gedye (June 1, 2023) informs, “the retraction of California’s biggest home coverage provider is only the latest development in a wildfire-fueled crisis that has smoldered beneath the surface of the state’s insurance market for years.

A fter the disastrous fires of 2017 and 2018, the number of Californians who were told by their insurer that their policy wouldn’t be renewed jumped up by 42% to almost 235,000 households. The two severe wildfire years wiped out decades of industry profits.”

In a press release informing the public of their decision, State Farm blamed a double whammy of an escalation in natural disasters in California coupled with soaring construction costs making rebuilding uber expensive. As the number of natural catastrophes increases, unprecedented demands are being placed on the state’s labor pool and supply chain, pushing prices even higher in a seemingly never-ending spiral.

So now what? I recently encountered my own issues insuring a vacation property located in a mountainous area – no one wanted to touch it. While I was finally able to locate an insurer, the price of the policy is astronomical.

There is still one final resort. California’s FAIR Plan Association (https://www. cfpnet.com) provides basic fire insurance to high-risk homeowners that cannot obtain an insurance policy from any other provider. Through a shared market, licensed insurance companies agree to share the risk of California homeowners who do not qualify for voluntary coverage by providing funding for the FAIR Plan. Even this solution has an emerging problem, however: it requires funding from existing insurance providers such as State Farm. As major insurers continue to pull out of California, available funding for the FAIR Plan is decreasing.

Since lenders require a homeowner’s insurance policy on every property for which they provide a mortgage, a situation akin to a virus propagating in the darkness is brewing. As we recently saw, when COVID-19 hit, everything screeched to a halt. Imagine what might happen if California real estate see more AGENTS on page 7 transactions suddenly ceased as lenders refused to fund loans due to a lack of insurance.

Carl Medford is a licensed Realtor with Keller Williams Realty and a licensed general contractor. This article is sponsored by the Central County Marketing Association.

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