Two insurance industry giants, State Farm and Allstate, have decided to stop writing new policies in California due to increasing wildfire risk and soaring construction costs. California’s insurance market is unsettled, and companies across the country are taking similar actions in regions prone to natural disasters. The impact of climate change has made wildfires more frequent and destructive, resulting in a shortage of coverage for California homeowners. The state-run insurance pool, California Fair Access to Insurance Requirements Plan, is facing pressure as enrollments surge. Other states like Colorado, Florida, and Louisiana have also struggled to maintain healthy insurance markets due to climate-related risks.
| Signal | Change | 10y horizon | Driving force |
|---|---|---|---|
| Insurance giants pulling back from California | Decrease in insurance coverage in California | Shortage of insurance options, higher rates | Increasing wildfire risk, climate change |
| Rising costs of repairing or replacing homes | Higher insurance premiums | Increased financial burden on homeowners | Increasing frequency of wildfires |
| Insurance companies limiting coverage or rates | Limited insurance options and higher rates | More limited coverage, higher premiums | Risks associated with natural disasters |
| California’s insurance market instability | Unstable insurance market in California | Difficulty purchasing insurance, higher rates | Increasing risk of wildfires |
| Loss of large insurers could impact rate policy | Potential loosening of consumer-minded policies | Potential rate increases in California | Pressure to accurately price risk |