Allstate joins State Farm in no longer offering new home insurance policies in California over climate risks

• State Farm said in May it won't offer new property and casualty insurance in California.
• Allstate also stopped selling new home, condo, or commercial policies in California.

Allstate, one of the largest US insurance companies, has joined State Farm in no longer accepting new applications for homeowners insurance in California, citing catastrophic events like natural disasters and higher construction costs.

Allstate quietly stopped issuing new policies in California months ago, but didn't announce the decision until Friday, CBSNews reported. "The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes, and higher reinsurance premiums."

Allstate cited other factors in pausing new policies in California, including state regulations and inflation, according to The New York Times.

State Farm, the largest auto and home insurance provider in the US, stopped accepting the applications of all business and personal lines of property and casualty insurance on May 27, according to an announcement.

The change won't impact those with personal auto insurance, and current property and casualty insurance holders can still file claims for property that's already covered by State Farm.

"State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market," the statement from insurance giant said.

In 2021, Northern California suffered the state's 15th largest wildfire in history. California has experienced over 7,000 wildfires per year on average for the past five years, CNN reported. The devastating blazes have destroyed thousands of homes.

In the event of a loss, providers covering property could be required to cover emergency food and shelter, personal property and valuables, the removal of debris, damage to the property, and more, per the California Department of Insurance.

"Insurance companies prioritize their short-term financial goals, the long-term goal of the Department of Insurance is protecting consumers," California Department of Insurance spokesperson Michael Soller told CNN.

Insuring property in California has been a dicey proposition in recent years, Vox reported. Torrential rainfall this past winter caused as much as $1.5 billion in insured losses so far in 2023. The state has also suffered the costliest wildfires in US history, including the 2018 Camp Fire, which led to more than $10 billion in losses, according to Vox.

CNN's Soller added: "It's important to note that current State Farm customers are not affected, and no non-renewals are being issued as a result of this announcement."

"We pledge to work constructively with the CDI and policymakers to help build market capacity in California," Friday's statement from State Farm said. "However, it's necessary to take these actions now to improve the company's financial strength."

What happens in California is often a harbinger for the rest of the US, Curbed writes. It's called the "California effect:" policy decisions made tend to roll out across the US. Insuring the uninsurable in the face of increasingly pervasive climate risk will be a challenge everywhere — and not just for wildfires.

In fact, Louisiana and Florida have also seen insurers decline coverage due to mounting catastrophic losses, according to Vox.

"We're steadily marching toward an uninsurable future, not just in California but throughout the United States," Dave Jones, who now leads the Climate Risk Initiative at the University of California Berkeley School of Law, told Vox.