Climate Disasters Prompt Another Home Insurance Company to Leave a State

The Hartford Financial Services Group is the latest insurer to say it won’t offer new policies to homeowners in California

A home in flames framed by two tall trees.

A home burns during the Dixie fire on July 24, 2021, in the Indian Falls neighborhood of unincorporated Plumas County, California.

CLIMATEWIRE | Another major insurer is capping how many households it’s willing to insure in wildfire-ridden California, applying more pressure to a market where consumers already struggle to access coverage.

The Hartford Financial Services Group starting in February will no longer offer new policies to homeowners in the Golden State, the firm said this week.

The company only accounts for a fraction of the state’s homeowner policies — less than 1 percent — according to the California Department of Insurance. Still, the move is notable because it means consumers in the country’s most populous state will have one fewer option when shopping for coverage that’s already expensive and difficult to come by.

“Every company matters in a market as large as California’s, with as many consumers as we have,” said Michael Soller, a spokesperson for the California Department of Insurance.

The move also highlights a related issue: Insurers are raising premiums and shrinking their business in areas at risk of climate-juiced wildfires. The problem is most prevalent in California, where the industry in recent years has faced historic losses and a regulatory approach that critics say has prevented insurers from adapting to the mounting threat.

“The homeowners’ insurance environment in California has unique challenges that have required us to reconsider the viability of writing new homeowners’ business in the state,” Hartford spokesperson Suzanne Barlyn said in an emailed statement.

“Based on these challenges and our analysis of the trends, we have decided to stop offering new homeowners policies starting Feb. 1, 2024,” she said, adding that the company will continue offering other products and renewing existing homeowners’ coverage based on its underwriting guidelines.

The challenges are many. One is that insurance companies’ costs have skyrocketed in step with rising reinsurance rates, supply chain issues and global inflation — all of which make paying out claims more expensive.

Those realities are bearing down on insurance markets across the country. But what makes California unique are two issues in particular. The first is the state’s widespread exposure to wildfires, which are growing more intense with climate change.

An E&E News analysis of data from the state Department of Forestry and Fire Protection, for instance, found that in the 20 years from 2003 through 2022, wildfires burned an average of 1 million acres a year in California. But in the six years from 2017 through 2022, California wildfires burned an average of 1.8 million acres a year and destroyed or damaged nearly 51,000 structures in total.

The second California issue is a decadeslong regulatory effort by the state to keep homeowners insurance accessible and affordable.

That pursuit has led California to prohibit insurers from setting premiums based on catastrophe models that predict future conditions. Instead, they have to set premiums based on losses over the previous two decades. The state also has barred insurers from including reinsurance costs in premiums.

Those regulations have succeeded in keeping premiums low. But critics say they also have prevented companies from setting premiums that accurately account for the risk at hand.

The consequence is that a growing number of insurers have shrunk their business in California, the Hartford among them. Other major players include State Farm, which said in May it no longer would write new policies in the state, as well as Farmers Insurance, which said in July it would cap the number of new homeowners policies it offers.

The California Department of Insurance has announced a sprawling strategy in hopes of stabilizing the market. The plan entails streamlining the rate review process, allowing insurers to use forward-looking catastrophe modeling, incorporating reinsurance costs in premiums — and requiring companies to provide more policies in disaster-prone areas.

California Insurance Commissioner Ricardo Lara said Wednesday he plans in the coming weeks to unveil the first set of new rules.

“Our strategy is really aimed at not just the biggest companies, but making sure even smaller companies can be sustainable, can continue to write in the market,” said Soller of the California Department of Insurance.

Reprinted from E&E News with permission from POLITICO, LLC. Copyright 2023. E&E News provides essential news for energy and environment professionals.