Not In Good Hands: Allstate Also Stops Accepting All New Home Insurance Applications in California

Allstate, one of the largest insurance companies in California revealed to the Department of Insurance on Friday that the company stopped accepting all new home insurance applications in California last year.

Insurance companies have been on shaky ground in California for the past several years, with companies somewhat pulling back from the state through actions such as  GEICO closing down all 38 of their offices in the state last year and State Farm raising driving insurance rates in March. However, the largest action came just last week when State Farm Insurance, the largest property and casualty insurance company in California, announced that they would no longer be accepting new applications for any kind of insurance other than personal vehicle insurance due to large increases in construction costs and inflation.

While technically first, Allstate had not formally announced its decision until Friday, instead opting for a quieter route. However, their hand was finally shown this week because the company needed to disclose their action in a notice to the Department of Insurance requesting a 40% rate increase for home and business property and casualty insurance. It was also noted that current Allstate customers would not lose their insurance.

Following public outcry, Allstate gave their reasons on Friday, noting in a statement from a company representative that “The decision to stop accepting new homeowner insurance claims is to protect current customers. We paused new homeowners, condo and commercial insurance policies in California last year so we can continue to protect current customers. The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes, and higher reinsurance premiums.”

While the reason was similar to State Farm’s, many insurance experts noted that more companies halting new policies was expected, but that it could also lead to major problems for the state in the coming years.

“If you want to buy a house in California with a loan from a bank or lending company, you need that proof of insurance before you can buy,” explained Trevor Connery, a lobbyist who has worked for insurance companies in the past, to the Globe on Friday. “With State Farm and Allstate out, which are California’s first and fourth largest insurance companies respectively, this makes it so much harder for potential homebuyers to get a home. They’ll either have to go with insurance companies looking to really increase rates for insurance, go with less scrupulous loan companies that will charge them a lot more for interest, or pay completely in cash and not get insurance. All are not great options.”

“There is no easy fix for this. Wildfire risk and other hazards have really made it harder to insure here, even in areas with lower risk. You could make rates more regional, get insurance that clearly doesn’t cover some incidents, but then you ruin people as a result. The state could also create their own insurance company as a major option, but I don’t need to tell you that that would lead to disaster. This is bad, and we don’t know if more will stop new applications soon as well.

Other insurance companies in the state are likely to make decisions on new property applications soon.