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State Farm Halts New Applications for Home and Business Insurance in California Due to Wildfire Risks
On Friday, State Farm announced that it has stopped accepting new applications for home and business insurance in California due to wildfire risk and rising costs. The company stated that it is necessary to take these actions now to improve its financial strength due to rising construction costs, a challenging insurance market, and rapidly growing catastrophe exposure. State Farm was the leading home insurer in California, according to the Insurance Information Institute.
Factors Leading to State Farm’s Decision
State Farm decided to halt new applications for home and business insurance in California due to several factors, including:
- Rising construction costs that outpace inflation
- A challenging insurance market
- Rapidly growing catastrophe exposure
The company recognizes the wildfire loss mitigation efforts from the Governor’s administration, legislators, and the California Department of Insurance (CDI) but explained that it is necessary to take action to improve the company’s financial strength. The company will continue to evaluate its approach based on changing market conditions.
Rising Wildfire Risks and Climate Change
Extreme events like climate change-fueled wildfires are posing increasing challenges to businesses and services in California. Since 1950, the area burned by wildfires in California has increased, according to the California Air Resources Board’s website.
Furthermore, a report from the National Oceanic and Atmospheric Association outlined billion-dollar disasters that the U.S. experienced in 2022 and emphasized the rising wildfire risk. Seventeen of the 20 largest wildfires by acreage in the state’s history have occurred since the year 2000, according to NOAA. Additionally, 18 of the 20 most destructive fires, which were measured by the number of buildings destroyed, have also occurred since 2000.
According to the same report, “In four of the last six years (2017, 2018, 2020, and 2021), California has experienced historically large and costly wildfires with losses well exceeding $65.0 billion.”
Other Insurance Companies’ Response to the Climate-Related Catastrophes
State Farm is not the only insurance company that has changed business practices in response to climate-related catastrophes. In early 2022, American International Group (AIG) announced that it would no longer renew policies for thousands of homeowners in the state, citing rising costs and wildfire risks.
Conclusion
In conclusion, State Farm is halting new applications for home and business insurance in California due to wildfire risks and rising costs. This decision is necessary to improve the company’s financial strength. Rising construction costs, a challenging insurance market, and rapidly growing catastrophe exposure are the main factors that led to the decision. Extreme events, especially the climate change-fueled wildfires, are posing challenges to businesses and services in California. American International Group (AIG) also cited rising costs and wildfire risks as reasons for changing its business practices.
FAQ
Why is State Farm no longer accepting new applications for insurance in California?
State Farm is no longer accepting new applications for insurance in California due to wildfire risks and rising costs. Rising construction costs, a challenging insurance market, and rapidly growing catastrophe exposure are the main factors that led to the decision.
What led to American International Group (AIG)’s decision to no longer renew policies for thousands of homeowners in the state?
AIG announced that it would no longer renew policies for thousands of homeowners in the state citing rising costs and wildfire risks.
Why are extreme events like climate change-fueled wildfires posing increasing challenges to businesses and services in California?
The area burned by wildfires in California has increased since 1950, according to the California Air Resources Board’s website. Additionally, a report from the National Oceanic and Atmospheric Association outlined billion-dollar disasters that the U.S. experienced in 2022 and emphasized the rising wildfire risk. Seventeen of the 20 largest wildfires by acreage in the state’s history have occurred since the year 2000, according to NOAA. Furthermore, 18 of the 20 most destructive fires, which were measured by the number of buildings destroyed, have also occurred since 2000. In recent years, California has experienced historically large and costly wildfires with losses well exceeding $65.0 billion.
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