Major Insurance Companies Are Leaving Florida and California. But Why?
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Multiple major insurance carriers have limited the number of policies they will sell in states like California and Florida or have pulled out of the states completely as natural disasters are becoming more powerful and inflation is making it more costly to insure disaster-prone areas.
Read below for a more in-depth overview of why insurance companies are leaving Florida and California and how you can maintain auto and home insurance coverage if you live in a high-risk region.
Why Are Insurance Companies Leaving Florida and California?
As climate change, rising prices and other state-specific characteristics impact the insurance industries in California and Florida, many insurers have opted to cut back on selling property and casualty (P&C) insurance, which is a broad category that includes homeowners insurance, car insurance and more.
The changing climate has resulted in more frequent and intense natural disasters in both Florida and California, making homes and vehicles in those states riskier to insure. For example, hurricanes have been producing increasingly more rain since the end of the 1900s, putting Florida at risk for more water damage since it has historically been the most hurricane-prone state in the country.
A similar issue has arisen in Louisiana, which has experienced the third-highest number of hurricanes in United States history. Since major hurricane damage struck the state in 2020, more than 20 small insurers have either withdrawn from Louisiana or become unable to pay their debts.
Meanwhile, California wildfires are becoming more potent, with 11% of the state’s land burning between 2010 and 2020 compared to only 3% between 1970 and 1980. At the same time, damaging floods have become far more frequent in California over the past 60 years. These floods can often result in mudflows since the state’s intense dry seasons make soil looser and more likely to run off.
Reinsurers Are Concerned
As costly disasters are becoming more common, reinsurance companies have been raising prices for their services. Reinsurance is a type of coverage that insurance providers buy to protect themselves from massive financial losses.
In addition, reinsurers face significant pressure in the Florida insurance market, which is dominated by small insurers that are unable to handle the large volume of claims that arise after natural disasters like hurricanes on their own. As a result, some reinsurance companies are opting to step away from Florida, making it harder for the remaining insurance carriers to continue covering major losses.
Poor economic conditions have made it more expensive to insure disaster-prone homes and vehicles. Inflation rose by 8% in 2022, resulting in higher costs for construction and property repairs. Coupled with the increasing prevalence of damaging weather events, this means insurance companies in California and Florida are receiving insurance claims more frequently and are having to pay more money per insurance claim.
Insurance carriers have departed from Florida in particular due to a legal system that has encouraged excessive litigation and fraud. Prior to reforms passed by state legislators toward the end of 2022, property insurance companies had to pay policyholders’ attorney fees after losing a case, while also paying their own attorney fees regardless of whether they won.
On top of this, contractors could enter into agreements allowing them to sue a home insurance company on a policyholder’s behalf. This enabled them to file fraudulent claims and sue the insurance company for denying the claims with minimal risk since they would not have to cover the insurer’s legal expenses if they lost.
As a result, Florida accounts for close to 80% of homeowners insurance lawsuits in the United States despite only accounting for 9% of homeowners insurance claims. While recent legislation should mitigate these issues in the Florida home insurance market going forward, unnecessary litigation remains a problem for the state’s car insurance industry.
Responses to State Laws
Insurance providers may also be dropping out of California and Florida due to various regulations surrounding insurance sales. For example, both states require insurance companies to receive government approval before implementing major rate hikes. As a result, some insurers could be pulling out of the states strategically in an attempt to get their preferred rate increases approved.
Meanwhile, insurers in California have to pay into the state-created Fair Access to Insurance Requirements (FAIR) Plan based on their market share. As a result, selling fewer policies could allow insurers to lower their market share and limit the amount of money they have to contribute to the FAIR Plan.
In addition, California insurers could be leaving on account of the increased risk associated with insuring homes due to the state’s proximate cause rule. This insurance regulation requires home insurance companies to pay out claims for losses that aren’t normally covered by home insurance if they were caused by a covered peril. So, while most homeowners policies exclude coverage for mudflows, insurance carriers could still have to cover mudflows caused by wildfires.
Which Insurance Companies Dropped Coverage in California and Florida?
State Farm has stopped accepting applications for certain types of P&C insurance in California, although it is still selling personal car insurance policies. In addition, it will not cancel existing home and commercial insurance policies. Similarly, Allstate has paused sales for new home, commercial and condo insurance policies.
American International Group (AIG) and Chubb also lowered the number of high-end homes they would sell coverage to, while Lemonade stopped doing business in California after the state government declined to approve its requested rate hike. Smaller home insurance providers have withdrawn from the state as well including AmGUARD Insurance and Falls Lake Insurance.
Although Farmers Insurance will not necessarily lower the number of policies it underwrites, the company has announced that it also won’t offer additional policies to make up for the companies that are leaving California. Meanwhile, Liberty Mutual has stopped selling business owners policies (BOPs) to commercial clients in California.
In 2024, four subsidiaries of Kemper will also nonrenew home insurance policies in California. However, this decision is not limited to California as Kemper has announced its intention to step away from selling preferred home and auto insurance around the country. Instead, the company will focus on selling nonstandard auto and life insurance policies, which will still be available in California.
Six insurance carriers in Florida became insolvent in 2022, while more than twice as many either stopped selling new policies or stopped doing business in Florida altogether. This includes Farmers, which stopped writing new property insurance policies and is reportedly considering dropping out of Florida entirely. Meanwhile, AIG’s Lexington Insurance has left the state completely, leaving its former customers without coverage.
What Should I Do if My Insurance Company Leaves My State?
If you have heard that your insurance company is leaving your state, you should contact your insurance agent and ask whether your policy will be canceled. It is possible that your policy will be renewed and the company is simply no longer underwriting new policies.
However, if your policy will be canceled, you should begin to look for coverage from other private insurance carriers. There are still about 115 companies selling personal insurance products in California, so you should be able to find coverage even if major insurers are departing from the state.
If you are unable to find affordable insurance on the private market due to the California or Florida insurance crisis, you can turn to your state’s government-instituted insurer of last resort. However, you should note that California FAIR Plan insurance is expensive and only covers perils like fire, lightning, smoke and explosions. Similarly, Florida’s state-funded Citizens Property Insurance offers less in-depth coverage than the private market, though it is generally cheaper.
How To Shop for Insurance if You Live in a High-Risk Area
You can take the following steps to shop for property and casualty insurance if you live in a high-risk area:
- Use an insurance marketplace like SmartFinancial to compare insurance quotes from multiple companies.
- Determine what coverage limits you need to adequately protect your home, cars and other belongings.
- Consider buying extra coverage types like flood insurance through the National Flood Insurance Program, along with earthquake insurance or wildfire insurance if your area is susceptible to these perils as a standard policy would exclude them.
- Take steps to mitigate the impact of natural disasters on your property and ask an insurance agent if you are eligible for any safety discounts.
- See if your state has an insurer of a last resort that you can buy coverage from if no other company will offer you affordable insurance.