Two insurers cutting back in California. Is Washington next?
Jerry Cornfield
(Washington State Examiner)Two major insurers that stopped issuing new homeowners policies in California are showing no signs of doing the same in Washington, for now.
State Farm General Insurance Co. last month ceased accepting new applications, saying the decision was due to “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure and a challenging reinsurance market.” All-State Corp. did so quietly last year.
Neither firm, nor any of the roughly 100 others writing policies in Washington, are signaling a similar course of action in this state.
“To my knowledge, no insurers have made any announcements or have any plans to stop writing personal or commercial lines property insurance in Washington at this time,” said Kenton Brine, executive director of the Northwest Insurance Council, a nonprofit association of insurers of which State Farm and Allstate are members.
As every insurer has its own criteria for renewing coverage and setting premiums, he said there may be some that are writing fewer policies in specific fire-threatened areas, or choosing not to renew policies for some properties out there.
“But I don’t think any insurers – particularly any market leaders – are ‘pulling out of Washington’ due to fire risk,” Brine said.
Insurance Commissioner Mike Kreidler is unaware of any brewing exodus either.
The commissioner “is paying close attention to how insurance companies are reacting to the increasing risk. All the indicators we observe for our state’s property insurance market show that we currently have a healthy market and consumers can find property coverages,” spokesman Aaron VanTuyl said in an email.
Why not Washington?
Catastrophes such as hurricanes and wildfires are occurring with greater frequency and severity.
Last year was the eighth year in a row the U.S. suffered at least 10 catastrophic events causing more than a billion dollars in losses. In 2022, there were 18 separate billion-dollar weather and climate disaster events including storms, flooding and wildfires, according to the National Oceanic and Atmospheric Administration.
Damaging and deadly wildfires on the West Coast are multiplying. The 2018 Camp Fire in California, which killed dozens and ruined the town of Paradise, caused an estimated $10 billion in losses.
In 2020, flames destroyed nearly 70 homes in the tiny Eastern Washington town of Malden. Multiple fires throughout the Western States that fall caused $16.5 billion in damage, according to NOAA. In 2021, federal authorities tallied four billion-dollar fires in California, Oregon and Washington.
Rebuilding in storm- and fire-ravaged communities gets costlier and, not surprisingly, results in insurers hiking premiums for businesses and homeowners, or as seen with State Farm and Allstate, not assuming new liabilities.
Across the country, between January 2020 and last December, insurers experienced inflation-driven increases of 33% for construction materials and 27% for labor, said Nicole Ganley, assistant vice president for public affairs with the American Property Casualty Insurance Association.
And the cost of reinsurance climbed 58% in the same period. Reinsurance is insurance for insurance companies, the backstop insurers rely on to help pay claims after a major loss event. It is a way of transferring some of the financial risk to another insurance company, the reinsurer, according to the Insurance Information Institute.
In California, like in Washington, companies are limited in their ability to increase premiums and must apply to the respective insurance commission office for rate hikes.
But it’s a more difficult task in California where voters approved Proposition 103 in 1998 setting solid guardrails on what companies can consider when setting rates and charging premiums.
Modeling techniques used in other states for predicting losses related to hurricanes, and could possibly be used to predict potential wildfire losses, are not allowed in California, he said. Meanwhile, the state wants insurers to offer discounts to policyholders that make minimal efforts to protect property from wildfire.
In recent years, insurers report having rate increase requests denied or severely limited even as losses from fires mounted, Brine said.
“Companies with larger shares of the market have to consider how much risk they can afford to take on if (or when) there is another wildfire that burns thousands of homes,” Brine wrote in an email.
“There are examples of smaller companies that went insolvent because they had too much risk exposure in a place like Paradise,” he said, referring to the 2018 blaze that killed 85 people, and destroyed nearly 19,000 homes, businesses and other buildings.
Embers of concern
In Washington, homeowners in areas damaged or threatened by wildfires are likely seeing premium increases. Some smaller companies may have chosen to not write new policies in those areas.
But, Brine said, he had “not heard about any unresolvable problems” obtaining homeowner’s insurance though he had heard it’s getting tougher to find commercial coverage.
State Sen. Mark Mullet, D-Issaquah, a business owner and former chair of the Senate committee that oversaw insurance-related legislation, said the potential exit of insurers is an ever-present concern lawmakers must keep in mind.
“We have to be really careful,” he said. “You have to have a framework for the industry to operate in the state.”
Certainly, the situation could change due to the ever-increasing risk.
VanTuyl said it’s why Kreidler supports the use of building codes and land-use management approaches accounting for climate risks.
“Taking steps to mitigate against future property damage is the best path to maintaining a healthy property insurance market and keeping insurance readily available to consumers,” he said.