The ongoing home insurance crisis in California is about to deepen as yet another company has announced its withdrawal from the state over profitability concerns.
American National, a private insurer headquartered in Texas, has informed the California Department of Insurance that it will stop offering homeowner insurance policies by this fall and will begin sending nonrenewal notices to customers as early as August, Insurance Business reported.
American National is the latest in a series of private insurers operating in California that have announced intentions to leave the state or cease offering new policies because of rising costs and decreasing profits. Before the Texas insurer, State Farm, Allstate and Farmers paused new policies in the state or set new caps on them, affecting millions of policyholders. Together, the three companies cover over 40 percent of the state's home insurance market.
The withdrawal of American National is also expected to affect tens of thousands of California residents. As of December, American National counted a total of 36,475 homeowner policies in the Golden State, worth about $37.9 million in premiums, the San Francisco Chronicle reported.
"This action is driven by significant and persistent profitability issues in the homeowners insurance market," a company spokesperson said in a statement to the outlet, attributing the decision to "inflationary pressures driving up costs, increasing claims frequency and competitive market conditions."
In addition to California, American National plans to withdraw from eight states because of declining profits: Arkansas, Colorado, Louisiana, Minnesota, Oklahoma, South Carolina, South Dakota, and Washington.
The timing of the withdrawal has not been confirmed, according to the company. Newsweek contacted American National for comment by email outside of business hours.
The reduction in policies and exodus of private insurers have left many California homeowners scrambling for options, leading to a surge in the number of policies under the FAIR Plan, a backstop insurer that offers basic fire insurance when traditional insurers do not.
In October, the FAIR Plan reported getting 1,000 policy applications a day, and 350,000 California homeowners are estimated to be covered by what should be an insurer of last resort. Homeowners insured with the FAIR Plan pay higher rates and must purchase separate policies for theft, liability and water coverage—but finding a better alternative has become difficult.
The insurance crisis in California is deepening at a time when homeowners in the state are becoming more vulnerable to the risk of extreme weather events—such as wildfires, which have always been common in the state but are expected to become more frequent and more severe as a result of global warming.
It's this increased risk that leads insurers to leave the state, as they consider the estimated costs of damages they may have to pay policyholders in the near future.
The rise of home insurance premiums in California is controlled by the insurance commissioner, who must approve a rate hike requested by an insurer before it's implemented, according to Proposition 103, a law passed in 1988. While the measure is meant to protect policyholders from sudden increases, it has kept private insurers from rising prices enough to keep up with growing costs.
Governor Gavin Newsom's administration has tried for months to stabilize the market, urging the California Department of Insurance to expand coverage options.
Newsweek contacted Newsom's office for comment by email outside of business hours.
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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Giulia Carbonaro is a Newsweek Reporter based in London, U.K. Her focus is on U.S. and European politics, global affairs ... Read more
