For decades, insurance has been a stable and fairly boring industry. Lately, however, it has attracted attention from regulators after premiums spiked and some major firms stopped writing policies in some states.
Farmer’s Insurance is the latest company to make that move, announcing that it will no longer offer homeowners, auto, and umbrella coverage to Florida residents. The action affects an estimated 100,000 current policyholders but the company says it can’t be helped. In a statement, it said it has to leave Florida because of hurricane risks.
“Affected customers will receive notifications detailing when their coverage will end and will be advised of options for replacement coverage,” the statement said.
Recently, State Farm announced it would no longer write homeowner policies in California, a state that seems to be hit with annual wildfires. Those fires have wiped out thousands of homes, resulting in huge expenses for State Farm and other carriers operating in the state. In addition to inflation, regulations and other requirements have increased the cost of rebuilding.
Stacy Elmore, the co-founder of The Luxury Pergola, a company that provides home improvement services to many homeowners in California, regulations make rebuilding a home very expensive.
“What we see…is excessive costs in permitting and planning when compared to other states,” she told ConsumerAffairs. “Additionally, the cost of skilled labor is quite high in the state. I expect that we may see a trend of companies choosing to not do business in states that they deem cost prohibitive.”
Max Cho is a licensed insurance agent and the founder and CEO of Coverage Cat. He says inflation and reinsurance costs are putting pressure on companies operating in states with a lot of claims and lawsuits. He says Florida is a good example.
“Far more Florida litigation was occurring than elsewhere, which the Florida government responded to with new laws,” Cho told us.
Lots of lawsuits
Cho says of the two states, California remains in a relatively better place for home insurance than Florida. In Florida, he says years of high litigation costs have pushed the state-backed insurer of last resort to 16% market share, twice the size of any private insurance company. In California, only 3% of the market was forced to use the state-backed insurer of last resort.
Meanwhile, car insurance premiums have risen sharply in the last year in just about every state. The Consumer Price Index (CPI) for June shows auto insurance premiums have risen by nearly 17% over the last 12 months. Cho says new cars not only cost more but they cost more to repair.
“Car repair costs and car valuations rose steeply,” he said. “Since car insurance is tied to the value of the cars, that was a big issue, and regulators mostly do not allow prospective rate hikes, only retrospective, so you’re chasing inflationary prices, meaning insurance continues to rise even after other prices level off.”