Allstate says it is considering return to California homeowners’ insurance market

Like those in a number of other catastrophe hit states, California’s policyholders are watching their pool of available carriers shrinking at a concerning rate.

Victoria Roach, president of the California FAIR plan confirmed yesterday that the state fire insurer of last resort is now one of the largest insurers of residential property in the state, despite the insurer’s aim to divest itself of as many policies as possible to private sector carriers.

But in what could be good news for the state, two years after halting the issuance of new homeowners policies in California, Allstate has said it is considering a return to the market. The company’s reentry hinges on the California Department of Insurance’s approval to incorporate catastrophic modeling in their rate increase proposals.

The insurer paused new policy offerings in 2022 due to increased wildfire risks, the escalating costs of home reconstruction, and rising reinsurance prices, though it maintained renewals for existing customers.

Allstate expressed in a statement, “Once home insurance rates fully reflect the cost of providing protection to consumers, we’ll be able to offer home insurance policies to more Californians with timely rate approvals, the use of our advanced wildfire modeling and reinsurance costs.”

Even though the FAIR plan is pushing for higher rates, there are a number of disincentives for carriers in the golden state;

On the hook for catastrophes.

If a major disaster hits California and FAIR doesn’t have enough money to cover claims, it can order insurers operating in the state to contribute to the losses it suffers. “In the event that we have a catastrophe,” Ms. Roach explained yesterday at a Little Hoover Commission hearing “ and where the claims are coming through, we don’t have the capital to fund those claims we will ‘assess the market’. So based on market share two years in arrears, we will send a bill to each insurance company to provide money to the FAIR plan to cover our losses and our operating expenses.”

“So even though they’re not making any money selling policies, they’re still on the hook for the shortfall that you can’t pay out – is that correct?” Commissioner Anthony Cannella asked, “It just seems like a house of cards.”

Regulators meddling

Regulators everywhere love to regulate, and some would say, in no state more than California. Even though regulators may be belatedly trying to allow some more flexibility for the market to operate, it appears that regulators can’t seem to help themselves as news breaks that the Health Care Affordability board has approved a 3% cap on health insurance premiums in the state – “We want to be aggressive,” said board chair Dr. Mark Ghaly earlier in the week. The health care industry has argued that the cap will be impossible to meet. More than half of California’s 425 hospitals are loss makers.

While Allstate has not specified a timeline for when it might begin issuing new policies again, the Insurance Department anticipates implementing new regulations by the year’s end that may be the first part of the process to make California a viable insurance option.

If the regulations were in effect today, we would begin selling new homeowner insurance policies tomorrow,” said Gerald Zimmerman, senior vice president of government relations for Allstate, in a public hearing on April 23. “Let me repeat that: As soon as we can use catastrophe modeling and incorporate the net cost of reinsurance into our rates, we will be open to business in nearly every part of California.”