State Farm, one of the longest established insurers in the US, has announced the cessation of new homeowner P&C applications, following a rapid rise in risk as a result of Califirnia’s wild fires, an increase in construction costs and a ‘challenging market.’
According to reports, State Farm said it has already stopped accepting new business, personal lines property and casualty insurance applications for California homes. The new policy will not impact personal auto insurance, according to the release. State Farm’s independent contractor agents will also continue to serve existing customers. “We take seriously our responsibility to manage risk,” the company said in an official release.”
The insurer issued the statement to clarify their decision, saying: “State Farm’s provider of homeowners insurance in California, will cease accepting new applications including all business and personal lines property and casualty insurance, effective May 27, 2023. This decision does not impact personal auto insurance. State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”
The statement continued: “We take seriously our responsibility to manage risk. We recognise the Governor’s administration, legislators, and the California Department of Insurance (CDI) for their wildfire loss mitigation efforts. We pledge to work constructively with the CDI and policymakers to help build market capacity in California.”
State Farm’s battle with weather-related risk is ongoing
The news follows further weather-related risk reports by State Farm, as the company issued a statement in March 2203 saying its annual claims paid to help customers recover from hail damages increased more than $1 billion from 2021 to 2022.
According to the insurance giant’s official statement, the reasons for the sharp increase in hail damages was two-fold, namely: an increase in hail claims and inflation.
The number of hail claims increased by nearly 45,000 from 2021. However, inflation and supply chain issues occurring across the country is also responsible for the overall increase. To put it in more relative terms, the average claim increased by nearly $2,000 last year. That is the largest year-over-year increase to date.
It seems likely that the raised wild fire risk is just a small portion of State Farm’s stated reasons for halting P&C applications. This is because following an unusually wet cold season, the likely hood of wild fires, according to the 2023 U.S. wildfire forecast from Accuweather, predict that in California, 400,000 to 1 million acres will burn. This places the state at average or slightly above average for fire danger later in the summer.
However, according to US Construction Cost Trends, A combination of events, including soaring construction demand, inflation, pandemic-related restrictions, supply chain disruptions, labour shortages and the war in Ukraine—are resulting in spiralling costs and uncertainty across the construction industry.
CBRE’s new Construction Cost Index predicts a 14.1% year-over-year increase in construction costs by year-end 2022 as labor and material costs continue to rise.
However, that also state that “Escalation should stabilize to the 2%-4% range in 2023 and 2024, on par with historical averages.”
State Farm’s new policy will not impact personal auto insurance, according to the release. State Farm’s independent contractor agents will also continue to serve existing customers.
Source: State Farm
