More insurers exiting California's home insurance market
Berkshire Hathaway’s AmGUARD as well as Falls Lake Fire & Casualty are pulling out of the state’s beleaguered home insurance sector.
California’s home insurance market is set to suffer another blow as Berkshire Hathaway’s AmGUARD and Falls Lake Fire & Casualty Co. plan to withdraw from the state, according to filings with the state’s insurance department.
AmGUARD will stop writing personal line policies in the state effective August 21, 2023, according to a sample non-renewal notice. Additionally, the company, a subsidiary of WestGUARD, is also pulling its personal umbrella line from the state, as carrying an AmGUARD home policy is a requirement of the umbrella program, according to the company’s regulatory filings. This change affects policies with renewal inception dates of November 14, 2023.
As a result of its decision, AmGUARD will not be allowed to renew any policies from the withdrawn home insurance program into a similar program offered by the same insurer group in California. AmGUARD is also barred from filing a replacement homeowners program for at least three years after the effective date of the withdrawal, according to a letter from the state’s insurance regulator.
Falls Lake is pulling out of the market because it couldn’t obtain reinsurance, according to a letter the company filed with the California Department of Insurance. The filings indicate the changes will take effect on September 21, 2023.
West Coast market meltdown
This news comes just months after State Farm, Allstate and Farmers Insurance announced they would stop writing new home policies in the state. Additionally, Liberty Mutual recently pulled its business owner policy (BOP) line from the state starting this fall.
While the state’s high natural catastrophe risks have been making for a challenging market, it is not the only force weighing on California insurers. Also driving a large portion of this market turbulence is inflation and its effect on construction material and labor costs, which in turn drive up claims costs and that eventually works out to higher rates.
According to Bill Martin, president and CEO of Plymouth Rock Home Assurance, the average costs for repairs have increased as much as 40% for some claims.
“Natural catastrophes might be a bit of a catalyst, but they are not the only thing playing on insurers,” Martin told PC360. “The truth is that post-pandemic inflation would have happened with or without catastrophes. The catastrophes only exacerbate them because they create a kind of demand surge in addition to the supply chain issues and labor market challenges that are driving increases.”
Further, the amount of time to complete repairs is also taking longer than in the past as supply chain and labor issues continue. As a result, insurance companies are responsible for giving the policyholders someplace to live in the interim.
“Something that might have been resolved in three to six months could now take a year or more to get repairs, Martin says, continuing: “And usually until the actual construction or repair is made, you don’t know for sure if you have the cost right because there might be difficulty in getting certain materials. Then you have another year of inflation on top of it, so the severity is wreaking havoc.”
In addition to inflation and more severe NAT CAT losses, the state’s insurance regulator has worked to keep premium growth in check. However, the suppression of home insurance rates has made it difficult for insurance companies to collect the necessary premiums to overcome growing losses.
“They (insurers) know they are paying more in claims than they are collecting in premiums, therefore, they should collect more premium. In the state of California, they can’t. So their hands are being forced by the government,” Robb Lanham, chief sales officer for HUB Private Client previously told PropetyCasualty360.com. “The role of an insurance commissioner is to protect consumers from overpaying for insurance, but there is also a caveat that says they also have to make certain that insurance companies can collect enough premium for them to stay in the state.”
Lanham noted that as more home insurers circle their wagons in the Golden State, it becomes more likely that the department of insurance will take a step back and reassess the market.
“This is a chance for the insurance regulator to step back and say ‘if the largest insurance company in the U.S. can’t make it work with its spread of risk, no one can,’” Lanham said, alluding to State Farm’s decision to stop writing new home insurance policies in the state.
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