Why is California a problem for home insurances?
As inflation drives up pricing for construction, reconstruction and cleaning services, costs for home insurers is going through the roof.
Add to that, the fact that California has been hit by several wildfires, flooding and other natural disasters and insurance companies are facing massive claims.
It simply has become unbearable for insurers to bare the costs for their insurers as the state has become a draining cost for companies.
Last year, California passed regulations that offered residents in CA discounts on their insurances and benefits to their policies. This has also not benefited insurance companies to make money.
One of the regulations put in place, is that insurance companies cannot simply cancel or non-renew policies in certain areas, meaning that the fact that State Farm Insurance has announced they retire services in that area, will most likely cost them a lot of money.
Is it a problem State Farm stops their offering?
In order for State Farm to make this decision, they must have considered that paying residents their moratorium after cancelling will be cheaper than continuing to receive new clients in the area.
State Farm insurance is America’s largest group of mutual insurance provides of car insurance, home insurance and casualty insurance. Which can be a problem because of a couple of things.
Firstly, if the biggest insurer in the country believes that it should not try to retain its customer base (or even expand it), they are not willing to take the cost risk for a longer period of time, even though they could afford it.
That means that smaller insurance companies in the area will most likely be hit even harder and might not be able to keep up the costs associated with it in the long run and go bankrupt.
For consumers it means that they do not have the luxury of picking the largest insurer, which usually has better rates than smaller insurance companies that cannot offer big package deals.
Secondly, it can mean that State Farm believes that California is incapable of having home insurance in its current form and perhaps that this trend could continue outside of this state.
If costs keep rising nationwide and more and more natural disasters are happening, like in Florida, Texas and other states, we could see this form of action being taken on more states.
What to do if you live in California?
If you are already living in California and you have an insurance with State Farm, the first thing you should do is read your policy carefully. Due to aforementioned regulations, you might be eligible for funds if State Farm decides to pull the plug on your policy.
It is also important to start looking around for other policies and possibilities at other companies in the state, as it seems almost invevitable that State Farm will pull the plug on all policies longer-term.
California is a high-risk state, so be aware that policies might not be cheap and if they are, it could be that they do not give you a lot of coverage. Make sure that you balance price and coverage well for your personal situation to avoid headaches in the event of disaster.