In filings with the California Department of Insurance, Tokio Marine America Insurance Co. and Trans Pacific Insurance Co. announced their withdrawal from the homeowners and personal umbrella insurance markets in California. Both companies are subsidiaries of Japan-based Tokio Marine Holdings Inc.
The move marks a total of 10 major carriers withdrawing from the US state, leaving FAIR Plan as the now, over-used and only option for homeowners, one report stated.
So far, companies to have withdrawn, include: The Hartford, Allstate, State Farm, CSE, USAA, Kemper, Berkshire Hathaway’s AmGUARD as well as Falls Lake Fire & Casualty .
The insurers that have reduced or ceased operations in California, often cite wildfire risk. Other reasons include high population density and fire risk following earthquakes. Some insurers, like Allstate and State Farm, have stopped issuing new policies in California, though State Farm recently announced it would not renew 30,000 homeowner policies.
According to reports, the two insurers covered 12,556 homeowner policies in California with US$11.3 million in premiums and 2,732 personal umbrella policies for liability worth $400,000. The companies did not specify reasons for their exit or the locations of their policies in the state. Non Renewal notices to customers will start on July 1.
The decision not to renew personal liability insurance suggests a desire to leave California completely rather than adjusting their risk exposure with plans to return to the market later.
California homeowners have faced soaring rates and have been forced to rely on the state-created wildfire insurer of last resort, the FAIR plan, which has experienced delays.
NatCat an escalating issue
A recent report from Senator Martin Heinrich (D-NM), Chairman of the US Congress Joint Economic Committee (JEC), shows how climate-related wildfires are causing a huge economic burden on the United States. The estimated yearly cost ranges from $394 billion to $893 billion, much higher than previous estimates.
The report, prepared by the JEC Democratic Majority, states that the damages equal 2-4% of the US Gross Domestic Product (GDP). This is much higher than earlier estimates, which had placed the annual cost of wildfires between $87.4 billion and $427.8 billion in today’s dollars.
The economic costs include insurance payments, rising insurance premiums, lower real estate values, lost income, property and infrastructure damage, higher electricity costs, evacuation expenses, federal wildfire suppression costs, and decreased tourism, among other factors.
These findings stress the increasing economic strain of climate-driven wildfires on the country, highlighting the need for a broad strategy to address the various effects and costs of these more frequent and intense events.
Reforms likely to attract insurers back
In response, California Insurance Commissioner Ricardo Lara proposed reforms known as the Sustainable Insurance Strategy to attract insurers back to the state. Changes include altering the rate hike request process and allowing forward-looking risk models. The reforms are set to take effect by year’s end.
Broker and insurance expert Karl Susman, told press: “This is bad timing, because there’s no place for [customers] to go other than the FAIR Plan that is already bloated and overexposed based on what they’re designed for and what they’re financed for.”
The FAIR Plan serves as California’s insurer of last resort, providing policies to customers who cannot obtain coverage from other companies. This insurance tends to be costly and offers subpar policies. The number of customers relying on the FAIR Plan has increased significantly in recent years.
“The FAIR Plan is getting a thousand applications per 24 hours, which is outrageous to even conceive of,” Susman added.
Tokio Marine has not yet responded to a request for comment.
